BBB Business Tip: Getting your Business Ready for Tax Season
Wednesday, January 6th, 2021
- Know your federal and state tax obligations. Requirements vary by state and can change depending on the structure of your business, so you’ll need to do some research and find out how to calculate your state and federal taxes. The IRS Small Business and Self-Employed Tax Center and USA.gov’s Small Business Tax Information can help you determine what federal taxes you owe. Information about state taxes can be found on your state’s Department of Revenue website.
- Understand employment taxes. Employment taxes include Social Security and Medicare taxes, federal income tax withholding, and federal unemployment (FUTA) tax. To learn more about these, see the IRS article on Employment Taxes for Small Businesses.
- Find out when taxes are due, ahead of time. Scrambling to make a payment just before its due date is stressful, and you may incur a penalty for late payments. Avoid the stress by learning when your taxes will be due and plan ahead to make the payments on time or early. The IRS tax calendar can help you keep track of when payments are due and can even send you email reminders a week or two in advance of payment due dates.
- Separate your personal and business finances. Many small business owners struggle with this point, but separating your finances is worth the effort. Not only will it be easier to sort through your income and expenses as you prepare your taxes each year, it will make the audit process much smoother should you ever be subject to one.
- Take a year-round approach to taxes. It’s tempting to forget about taxes the moment April 15th passes, but creating good habits throughout the year will help you avoid the stress of struggling to get all your paperwork and payments together last minute. Make an effort to track your expenses, digitize receipts, and invest in software to improve your record keeping and facilitate accurate tax payments made on time.
- Hire an accountant. Not all small business owners are accounting experts and most don’t have the time needed to keep track of the accounts while making sure all the other aspect of their business are running smoothly. Hiring a qualified accountant or tax preparer is a wise business investment that can help your business thrive and even save you money in the long run. The NFCC says, “Seeing as you don’t necessarily need to have your accountant on staff full time and can instead pay them solely for their services, there is no reason not to seek an expert to prepare your taxes and educate you on how best to align your business finances.”
- Watch out for scams. Con artists have come up with a number of tax scams designed to cheat you out of your money or steal your business identity. Always guard your sensitive tax, business, and personal information carefully and get to know how the IRS works to avoid being fooled.