Many business owners find tax planning complicated and stressful when the end of the year comes and the best way to alleviate this is through consulting a professional tax advisory. However, there are certain things that every tax professional will recommend you do. These are described below:
#1. Use Accounting and Payroll Software
Accounting and payroll software make bookkeeping a breeze. It is also much easier to track deductibles and file tax returns. Use a well-known brand such as QuickBooks or Sage and your accountant will have no problems auditing your books at year-end.
#2. Maintain a Separate Business Bank Account
Always keep your business expenses separate. Otherwise, you could end up missing valuable deductibles when working on taxes or make a claim for something that is not a business expense. It’s also hard work for an accountant to try and separate your personal finance from your business. It will take extra time and likely cost more money.
#3. Make Sure You Know Your Deductibles
Many of your business expenses are tax deductible and easily calculated with free online tax tools. If you use a home office, you can claim for a portion of your everyday expenses. Do you drive business miles? If so, you can deduct a percentage of the cost of gas, maintenance, and even insurance. You can even claim a 50% deduction for meals that are business related.
#4. Use Freelancers
Hiring employees full-time involves a lot of overhead cost that can be unexpected. One way to keep your costs to a minimum is by hiring freelancers and independent contractors. For short-term projects, it ismore tax efficient to use contractors rather than take on an employee. Plus, you won’t be responsible for paying things like sick pay or vacation pay.
#5. Utilize Section 179
Do you need to buy new equipment for the business? Don’t forget to make full use of Section 179, which allows business owners to recover the cost of property and equipment, up to a value of $500k, as long as you claim in the year you made the purchase.
#6. File Taxes on Time
Penalties for failing to file your tax return on time are severe. If you are 60 days late filing your return, you will receive a penalty fee, which ultimately adds to the amount of taxes due. If you continue to forget to pay taxes due, IRS penalties will continue to accrue for every day that you are late.
#7. Start Planning for Retirement
Retirement can be costly, especially if you are used to a comfortable lifestyle. While some workplaces offer pensions, it is not a guarantee with every job and cannot be relied on, which is why it is better to have a retirement fund in place. Set this up now and start saving towards your future. You may even be able to retire early!
If tax is a mystery to you, speak to a tax accountant and seek advice so you are both compliant with IRS regulations and get the most out of your tax return.