If you are a small business owner, you have probably taken out a loan from time to time. As part of the terms of repaying that loan, you had to pay a significant amount of interest. That’s how loans work. You borrow an amount and repay that amount plus interest. So, why do you let the government borrow your money interest-free? Overpaying your taxes allows the government to use your money. Money that you could use yourself.
The odds are that your small business needs to make the most out of every dollar. Reducing costs is certainly one of your major priorities. Often small business owners leave on cost reduction on the table. They overpay their taxes. How can you avoid overpaying?
Record Every Expense
Make sure you keep accurate records of every expense. Get professional help in understanding what deductions are available. When in doubt, keep the record and do some research to check if the deduction is allowed. It’s important to consider that tax law changes from year to year. Maintain a current understanding of tax credits and allowable deductions.
Avoid sending up any red flags by understanding some of the more common traps. These traps include the home office deduction, the ambiguous miscellaneous deduction, and the often blurred lines between business and personal expense deduction.
Pay On Time
Paying on time will ensure that you avoid costly penalties. As we all know, April 15 is tax day; however, owners of small businesses are considered self- employed. That classification means that you must pay estimated quarterly taxes plus quarterly self-employment taxes. Paying these taxes late might get you audited and can you leave you liable for interest penalties.
Paying estimated taxes can get confusing. One of the easiest methods is to start with the amount you paid the previous year adjusted for any changes, or predicted changes, like growth or additional expenses. Once you decide on an amount, spread that number over the 12 months of the year, and you know what you will need for each quarterly payment.
Each year around tax time you hear a lot of political talk about reforming the tax code. In its current form, the tax code is unbelievably complex and at times impossible to understand. Investing in the services of a professional tax service is one of the wisest moves you can make. They can help you keep more of your money to use in the financial management of your business. Yes, it will mean an added expense but one that will pay for itself many times over.