When running a small business, every dollar counts. The small business needs to make sure they are meeting their tax liability without overpaying. These are some tax tips for small businesses to keep them legal and to help save them money. Here some tax tips for small businesses:
Report and Claim All Income
The IRS will receive a copy of all tax forms, including the 1099 MISC. This form will show income, so it is important that the small business report this income. They should make sure the amount of income they are reporting will match the IRS’s income. If the income does not match, this will be a red flag at the IRS and lead to an audit or additional fees.
Keep Accurate Records
Sloppy or income records can lead to trouble. A person may miss the deductions they can take, or they can forget to report something. They may also lose track of clients or other businesses that owe money.
Some basic accounting software programs are designed for use by a small business. These programs are user friendly and will help a business stay organized and keep track of their income and expenses.
Net Vs. Gross Income
A small business needs to understand its net versus their gross income. If a business spends more money on an item than they are making, they will take a loss.
A business needs to look at the total expense, including all fees and expenses from their income. This can help them find additional savings on their taxes since the total income will not be as high.
Classify the Business
The business needs proper classification so that they are not paying too much money in taxes. The business can be a corporation, limited liability partnership, or other. All of these classifications will have different tax liabilities.
If the business is not classified correctly, they may pay more money in taxes than they need. The business should work with a lawyer and an accountant to determine the proper classification, so they do not overpay in taxes.
These are some tax tips for small businesses. A small business needs to keep accurate records so they will know their total income and where they can find tax breaks. Hiring a tax accounting firm can also be helpful. In case you do not have the skills, make sure that you delegate the job to professionals.