It’s challenging enough to run a business without adding the burden of yearly tax filing. According to experts, working with your accountant all year long, rather than just when you file your tax return, is crucial. According to John Blake, CPA in Hamilton, New Jersey, making financial decisions without contacting an accountant or financial consultant might put you at risk and cost you more money overall.
Here are nine recommended practices for small businesses concerning working with an accountant or financial expert, filing taxes, and small company accounting.
- Select a qualified accountant
According to Chandra Bhansali, co-founder and CEO of Accountants World, your accountant should offer to do more than generate financial statements and handle your taxes. According to Bhansali, they aren’t the ideal accountant for a small firm if that’s all they promise to accomplish.
According to Bhansali, your accountant should collaborate with you throughout the year to track revenue and expenses, ensure you don’t have a cash flow issue and keep an eye on your gross and net earnings. Work with your accountant before, throughout, and after tax season—not just in March and April. Most small businesses are unaware of how crucial accounting is to the health and expansion of their operations.
- File a tax return with the IRS for all income.
To compare the income you’ve reported to what they know you’ve received, the IRS receives a copy of the 1099-MISC documents you get. According to Blake, double-check that the income you submit to the IRS matches the amount reflected in the 1099s you have received. The IRS will raise a red flag if you don’t. You must record the income even if a client doesn’t provide 1099. State taxes follow the same guidelines, he claims.
- Maintain accurate records.
Your tax return will be accurate if you keep detailed and accurate records throughout the year. Insufficient record keeping, Blake claims, You can be skipping deductions or, worse still, placing yourself in jeopardy of an audit. Blake advises investing in a basic accounting software package for any firm since it is simple to use, affordable, and useful for keeping track of all your earnings and outgoings.
- Distinguish between business and personal spending
According to Blake, regardless of whether you properly reported business spending, the IRS may begin investigating your personal accounts if it audits your company and discovers personal expenses mixed in with business expenses. Get a separate bank account and credit card for your firm, and use those for business purposes.
- Recognize the distinction between gross and net income
Regardless matter how many units you sell, you will lose money if your product costs more to produce than your price for it. Small company entrepreneurs frequently overlook the distinction between net and gross income.
For instance, your gross income would be $50 if your product costs $100 to create and you sold it for $150. However, if expenditures are subtracted, your net revenue could only be $10. Knowing your gross and net earnings can help you run a more lucrative firm and expand it.
- Identify your company’s proper industry.
According to Blake, failing to designate your company correctly might lead to overpaying taxes. Your taxes will be affected differently depending on whether you classify your business as a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC, or Sole Proprietor. Small enterprises should speak with an attorney and an accountant to establish how their company should be categorized.
- Control payroll.
Blake advises employing a business to help with payroll, but make sure the business is respectable. Some business owners will choose a less well-known payroll provider to save money, only to learn later that the firm failed to submit payroll taxes on their behalf. According to Blake, the business owners are responsible for paying the payroll taxes if that occurs. The IRS normally checks to determine if payroll taxes have been paid every three months.
- Consult with your accountant about your company plan.
According to Bhansali, a qualified accountant may advise expanding your company. Ask their opinion on how much to put into your retirement account and if you should accept a bonus or put it off for a year. Your accountant can help you determine whether purchasing a modest place for your shop or company would be more cost-effective than renting.
- Make use of capitalization guidelines
You could deduct a sizable amount from your taxes if you buy physical property or equipment for your company. Make sure your tax consultant is aware of the capitalization regulations.