Is there anything more complicated than the United States tax code? Trying to interpret what different codes and rules mean is like attempting to decipher ancient Egyptian hieroglyphics from centuries ago. But the good news is that, somewhere in the middle of all that complex code, there’s some pretty good advice on ways you can save your business some money.
It also matters how you approach taxes. If you develop a strategy with specific objectives, you’ll be much better off than if you just throw everything together at the last minute and hope for the best.
Stop Procrastinating and Start Doing
While you more than likely pay taxes throughout the year, the April 15 tax deadline is still pretty significant. Specifically, it serves as a reminder that procrastination is costly and unnecessary. Just consider the following data points as curated by Bloomberg:
- 46 percent of small business owners don’t work with an accountant and instead take a DIY approach.
- 40 percent of small business owners spend at least 80 hours a year dealing with federal taxes.
- 106,776 small businesses were audited last year, with the average business owing an additional $5,500.
- More than $4.5 billion in IRS penalties were handed down last year in relation to payroll taxes.
Clearly, small business taxes matter to the government and business owners understand the importance of being thorough. But the truth is that many procrastinate, which causes unnecessary stress in April. It’s time to buck the trend and become more responsible.
6 Practical Tips
Spring should be a season of rejuvenation and excitement – not gloom and doom. If you want to remove some stress from your annual calendar, you can follow these practical tips to save time, money, and a bit of sanity.
#1. Hire an Accountant
A lot of small business owners forgo the use of an accountant because they want to save a few hundred dollars. The problem is that they end up making mistakes that cost thousands of dollars.
“An accounting error can range from something small, like not being able to make your checking account balance with your books, to something bigger, like not filing and paying your estimated taxes,” says Carrie Smith, small business consultant. “Even worse, you can get into financial trouble by mismanaging your cash flow, which is a common and costly pitfall for many small businesses.”
By hiring an accountant on the front end, you can avoid mistakes and stress on the back end. You can also write off tax preparation as a business expense, which means it really won’t cost you that much when it’s all said and done.
#2. Be Strategic With Big Business Decisions
If your business is about to do something major in terms of buying and selling assets or restructuring, make sure you discuss the timing and execution with your accountant or CPA. Depending on how and when you proceed, there could be positive or negative tax implications.
Take the sale of a business property as an example. If you’re planning on putting that money directly into another property that’s similar to the first one, then you could defer capital gains taxes by using a 1031 exchange. Simply following the protocol here could save you thousands.
#3. Stock Up at the End of the Year
If the end of the year is approaching and you ever feel like you’re getting ready to face a massive tax bill, you may consider taking this opportunity to stock up on inventory or supplies that you’ll need for next year. This drives up your expenses, which thereby offsets some of your income and reduces your tax bill. You obviously need the liquid cash to make this happen, but it’s a good option if you have it.
#4. Consider Using Independent Contractors Instead
“Most business owners when starting out cannot afford to hire employees because they have to pay payroll taxes and provide other benefits. By hiring an independent contractor, you do not have to pay benefits or payroll taxes,” CPA Crystalynn Shelton says. “However, make sure that you understand the difference between an employee and an independent contractor. If your independent contractor meets the legal definition of an employee, you could face penalties.”
#5. Write Off Bad Debts
Many business owners don’t realize that they can write off bad debt to save money during tax time. This won’t apply to every business – but it does come into play when someone owes you a debt and they don’t show any signs of paying it back. By writing it off you could potentially save thousands of dollars. You also won’t have to deal with the hassle of tracking down the money and can just count it as a lesson learned
#6. Get Better at Organization
You may not have all of your information organized this year, but you can take the time to start planning for next year (and each subsequent year). After all, what do you think it would look like if tax season came around next year and you had everything you needed neatly organized and labeled in the right folders? Suddenly, taxes wouldn’t overwhelm you. Instead, you’d just view them as another annual milestone that you’re ready to tackle.
If you aren’t sure of how to best keep your documents and records organized, speak with your accountant. He should have some pretty good strategies and advice for you. If nothing else, you’ll be able to get someone else’s opinion on the topic.
Keep More of Your Time and Money
Time is a finite resource. Once it’s gone, you can’t get it back. Money may not be as finite, but it’s no fun cutting a check for something that could have been avoided in the first place. By implementing the tax tips highlighted in this article, you can keep more of your time and money. Who knows – maybe you can spend next April taking a weeklong vacation somewhere warm, as opposed to holing up in your office, spending countless hours reviewing the books.