We all have to pay taxes, and that means your business needs to be on top of the situation as well. As you start your business, and set up your business finances, you need to think about the tax implications.
I didn’t think much about taxes when I first started, and that was a mistake since it cost me down the road. You don’t want to end up with a bill that’s larger than expected.
Here are three things you don’t want to overlook with your business taxes:
1. Understand the Tax Realities of Different Business Structures
When it comes to business taxes, you need to know what to expect with different structures. You can set up a situation where your business income “passes through” to you, without the business itself paying taxes, with the LLC and the S-Corp. However, when you are using an S-Corp., your business taxes need to be filed sooner.
You will need certain forms, and file a business tax return, no matter your structure.
Also, don’t get too caught up in structure and where you want to be incorporated. While there are some advantages to different states, the reality is that most of the time you’ll be better off keeping things simple.
2. Don’t Forget State Taxes
I forgot to plan for state taxes for the first two years of my business. This oversight meant an unexpected and disappointing tax bill in April. Also, be aware of the tax laws related to businesses in your state.
Whether you need to collect sales tax, or whether you just need to worry about paying income tax on your pass through income, know the realities of your state. Understand when taxes are due, and whether or not you can pay quarterly, similar to your federal requirements.
3. Keep Good Records
One of the most important things you can do for your business taxes is to keep good records. You want your business ready for tax time year round.
Keeping good records can ensure that you know where the money is going, and that you are claiming the deductions you are entitled to. Depending on your business, you might need to keep good records about what you pay employees and contractors, as well as how much your overhead costs.
If you need help with record-keeping, make sure to hire someone knowledgeable. You can get a bookkeeper or accountant to help you with your business taxes and records. There are also a number of great invoicing tools that can help you keep records. Apps like Shoeboxed can help you digitize your receipts and other records so that they are easy to access.
When it comes to the IRS, records are vital. You need to know exactly what is happening with your business so that you can pay what you owe in taxes — and not one cent more. Start as soon as possible to prepare for your business taxes. It’s one of the most important things you can do.
