With the first full year of business under your belt, it's time to start thinking about your tax obligations and liabilities. As a small business owner, taxes should ideally be on your mind at least once a month, whether that's when you pay your monthly expenses or perform your regular review of your books. Although filing your year-one business taxes might seem a bit overwhelming if you're a first-time owner of a company, with a few handy tips, you can find that it's not any different than most routine tasks.
While some owners opt for using the calendar year, others will use the fiscal year ending on the 15th day of the fourth month after the end of their tax year. You should have decided which year you're using when you first opened the business, but take time to review this and ensure this tax strategy works best for your business model.
Gather your records
Your financial records are the biggest determinant for how much in taxes your company and you will be need to pay, according to Intuit. You cannot report your total income, losses and expenses without having detailed and accurate records. If you don't have all of them, it could be a potential problem. If you have a bookkeeper, it should be his or her responsibility to handle all of these crucial records. However, many small business owners don't have the resources to hire an additional employee to deal with these documents and they have to take on this burden themselves.
Ideally, you'll want to use a computer program to help manage all of these records, whether it's QuickBooks or some other cloud-based bookkeeping software. By keeping everything in one place – particularly a secure, cloud-based repository – you can ensure all your financial records are safe and organized, which reduces the time and headaches involved in searching through old boxes and filing cabinets for the paper files. Plus, keeping accurate, easily searchable records can help down the road if the IRS ever decides to audit your previous returns.
Take advantage of deductions
Although some people might naively toss around the phrase "write it off" a lot when it comes to taxes without fully understanding what it means, there are still a lot of things business owners can actually write. In fact, you can deduct any business expense, including advertising, employee benefit programs, rent, utilities, office supplies, staff wages and more, according to the IRS. From meals with clients, to gas mileage to even the capital expenditures associated with equipment leasing payments, there are plenty of ways to reduce your overall tax burden.
Be careful to distinguish between personal and business expenses, since often, some small business owners have a tendency to lump everything together.
In addition, Section 179 of the IRS tax code allows owners to deduct up to $500,000 in expenses to cover upgrades, leasing or purchasing new equipment or machinery for the company instead of depreciating the cost of these assets over several years.
Review your corporate structure and filings
Regardless of whether you're the only employee of your small business or if you employ a handful of people, it's always wise to incorporate the company and to use the appropriate corporate structure. There are four main types of corporate structures, Entrepreneur noted, each with their own tax liabilities and filings, including sole proprietorship, partnerships and limited liability companies, C corporations and S corporations.
If you're the only employee of your business, a sole proprietorship is typically the best option. Partnerships and LLCs work best for small organizations with minimal employees, like a professional service such as law firms or accounting firms. Once you start getting more employees and a slightly larger operation, C corps typically provide an ideal solution and this is the typical structure for growing businesses. Larger enterprises with shareholders will utilize the S corp structure.
Work with a professional
Contact a professional accountant or tax attorney. Although it's up to you to gather your financial records and ensure all the filings are prepared and ready on time, having a trusted accountant or tax attorney makes the entire process more streamlined, efficient and, most importantly, accurate. These individuals can provide sound advice on everything from missed deductions to the best corporate structure for your small business.
Consider alternative financing
Despite the best efforts to avoid it, sometimes a small business will end up owing money to the IRS after filing its taxes. While most small business owners have been able to save some money to pay off any tax obligations, not every company is in such a good position.
Thankfully a commercial bridge loan from an alternative lender can be the solution for business owners that are unable to meet their tax burden. Whether it's a tax lien payoff or payroll taxes, alternative lending can help alleviate this burden and help your small business continue to grow.