Tips for Better Business Tax Management

 Ryan Tyson
  Jan 17, 2019

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.

Stay Organized

Tax Management

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:

  • Make an offer in compromise, which will let you settle for less than what you owe.
  • Negotiate an in-business trust fund express installment agreement. If you meet the criteria for this type of agreement, you can divide what you owe into manageable payments, so you can pay your back taxes over a maximum of two years.
  • You can also negotiate a regular installment agreement, which allows you to divide your debt into equal payments split over a maximum 72-month period.

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

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:

  • Work Opportunity Tax Credit: Small business owners who hire veterans, ex-felons, SNAP recipients, supplemental security income recipients, and other qualified individuals may be eligible for this incentive. The credit allows the business owner to deduct 40 percent of first-year wages up to $6,000.
  • Vehicle expenses: Many people use vehicles for business purposes. Some business owners are able to actually deduct the costs associated with business vehicles in order to save on taxes. Track the total mileage driven as well as any other vehicle-related costs, like repairs and fuel, to calculate your deduction at the end of the year.
  • Equipment expenses: Did you purchase new equipment for your business in the last year? If so, you may be able to deduct the cost using Section 179 expense on your tax forms. This can result in a huge tax savings for the business owner.
  • Health insurance costs: Small business owners may be eligible for a tax credit if they cover at least half the cost of single coverage for their employees. This can result in a credit of up to 50 percent of the health insurance premiums the business paid.

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.

Tips for Better Business Tax Management

Ryan Tyson

Ryan Tyson is a freelance writer in Tampa, FL.

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