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Running a successful business is all about watching your bottom line. This means watching expenses across all categories, but it also means something that's more challenging for many entrepreneurs: managing taxes effectively and paying what you owe. This can be difficult for new company owners and those who aren't familiar with business tax laws. Thankfully, there's plenty you can do to minimize what you owe the IRS. Start by following these three tips for the best ways to manage business taxes.
The best way to manage your business taxes is to stay ahead of the game. Don't wait until the last few months ahead of the tax deadline to start preparing your return. Instead, aim to stay organized all year. Update income and expense information throughout the year, so that it's all collected when it's time to prepare your returns. In addition, keep consistent and clear records. Tracking your expenses by day and week will ensure all the information you need to file taxes is already in place when you need it.
If you have a sole proprietorship or you're just getting your business off the ground, it's important to keep your business and personal finances separate. All recordkeeping, bank accounts, and credit cards should be completely separate for business purposes. This helps to ensure that you pay your taxes correctly and also comes in handy when you want to prove your company's actual income potential.
Pay Back Taxes
If you aren't able to completely pay your taxes when they're due, you'll have what's known as back taxes. You can owe back taxes to the federal government or to state and local governments. If you find yourself in this situation, you have a few options to deal with the back taxes you owe and get your business back on track:
Back taxes can be a huge issue for businesses, especially if you owe money for multiple tax years. This can lead to sizable tax debt as well as issues with fines and penalties. If you find yourself in this situation, working with a tax professional may be the best path to a better outcome. This is especially recommended if you're interested in an installment agreement, since a tax expert can help you negotiate for the best possible outcome.
Use the Right Accounting Software
Especially for small businesses, it can be tempting to try and get by on free software such as Excel. This might seem viable at first, but companies that go this route are at risk of losing important data or failing to account for tax-related information. To ensure this doesn't happen, it's worth investing in top accounting tools designed specifically to help businesses manage their taxes.
The sooner you switch over to business accounting software, the better. The right software for your company will include simple tax preparation solutions, whether it's exporting you data to your CPA or working with an online tax preparation service. Some business owners find that it helps to use specialized software that's been designed for their particular industry or niche. Be sure to do your research in order to get software that's easy to use and makes your recordkeeping tasks more efficient and accurate.
Keep Potential Credits and Deductions in Mind
It's up to you to figure out which tax deductions and credits are available to you. If you miss them, the IRS isn't going to point it out to you. The following are some of the most common business credits and deductions to consider:
It helps to work with a CPA or tax accountant in order to figure out which credits and deductions your business will be eligible for. Keep in mind that detailed records are a must if you hope to use these incentives to save on your taxes.
Tax management can be relatively easy if you keep on track, but things can derail quickly if you fall behind. Stay on top of things by following the tips outlined above, and don't hesitate to reach out for a professional's help if you find yourself falling behind on the taxes you owe.
Ryan Tyson is a freelance writer in Tampa, FL.
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