Whether you’re developing a new app, designing a helpful product or opening a new restaurant, taxes are eventually part of the financial equation for entrepreneurs. With tax season in full swing, the time for reporting expenses and claiming important deductions is now and how new business owners handle their reporting can make a big difference in terms of their bank and accounts and their success down the road.
Ensuring taxes are filed accurately while maximizing savings is a big job for new business owners. Entrepreneurs are likely to have their hands full with a variety of priorities from one moment to the next, so it’s important that they’re aware of ways they can successfully tackle their taxes with some money left to spare at the end of the season.
From hiring to business development, there are so many responsibilities that entrepreneurs have to keep in mind that taking on the project of taxes might seem daunting. With a better look at what options are out there and tips on where to save, new business owners can make the most of their earnings for the year while saving time on reporting. Any ambitious entrepreneur or prospective business owners, read on to learn more about how to set your business up for success during tax season!
Where Can Entrepreneurs Save On Taxes?
Depending on their business structures and enterprises, entrepreneurs could be taxed differently and will probably have the opportunity to apply for different tax write-offs. Today, there is a range of helpful options that can simplify filing taxes while empowering business owners to maintain enough cash flow to keep their business viable. Professional help and new technology can make the process much more efficient while knowing how to structure your business and its investment programs based on tax regulations might help you identify places where you can save money when filing.
Expenses that can be written off on your tax return are things such as employee salaries, employee gifts, company events that benefit the business in general (trade shows, conferences, educational events). It is important to keep track of such expenses, especially if they’re accumulated expenses.
PRO TIP — Make sure to include office supplies expenses, utilities, auto cost, and other travel expenses in your write-offs if applicable. Deductible expenses are usually those that are used to help keep running your business.
Other aspects of filing taxes are the same for all American citizens, whether they own and operate a business or not, but subsidies will be very different. Different government agencies work to create incentives through tax savings for small and large businesses, often with a focus on start-ups or newly developed companies, so business owners should look for subsidies they qualify for.
Entrepreneurs can find more information on relevant government subsidies on federal websites and can also keep an eye out for new tax-break programs for small businesses. New owners will want to take advantage of every subsidy afforded to them in order to maximize financial gains for the year. It’s likely that after you launch a new business venture, you’ll have to submit both professional and personal income, and you’ll receive a refund at the end of the year with everyone else.
Depending on your business, you may qualify for federal or state subsidies to help finance your business and it doesn’t hurt to keep tabs on the U.S. government’s Economic Development Administration to see what type of grants you may qualify for.
PRO TIP — Small Business Development Centers can be a good first step when looking to get a better handle on your business’s finances. They are located in cities all around the nation and can help provide resources for reporting.
Business owners that are operating their business out of their homes might qualify for certain tax deductions, and while many people might not think to claim their home office during taxes, taking a second look might be a lucrative way for entrepreneurs to save where they can. If your whole team is working remotely, it may help to know that you may pay taxes based on the different locations of your employees and be subject to particular regulations in those areas.
Employers will likely need to communicate and notify tax authorities in the state where their employees reside to pay taxes through that state. If your team is working from different countries, figuring out taxes becomes considerably more complicated.
PRO TIP — Many companies working with specialists in other countries often hire them on as contractors or freelancers so that those workers can simply pay taxes based on their location.
When to Seek Professional Help?
While many entrepreneurs tend to take a self-sufficient approach to most of their business endeavors, filing taxes can be quite an arduous and time-consuming task, especially for those that are unfamiliar with the filing process. Small mistakes can be costly in terms of money and the time it takes to correct the mishap down the road, so it’s imperative for entrepreneurs and business owners with little time to spare to take careful steps to ensure accuracy when recording tax information.
It might be worth the investment for business owners to seek outside help to handle their taxes because there’s a good chance the price of working with a professional will be less costly than filing incorrect expense information.
This can be even more difficult for entrepreneurs and business owners with a lot of reporting information to manage during tax season. It might make sense for entrepreneurs with heavy workloads to seek outside help for their taxes so they can rest easy knowing their reporting will be accurate and an experienced professional will leave no stone unturned when it comes to claiming relevant deductions.
You might not be ready to look at more drastic measures such as relocating your business to somewhere with different tax laws, so when considering more modest efforts that can make a real impact, seeking professional assistance might be a new owner’s best bet.
Tools that Empower Accuracy and Efficiency
With extremely large amounts of reporting data that can significantly impact a business’s taxes, it’s very important for entrepreneurs and business owners to ensure they and their CPAs are using the most reliable and comprehensive accounting tools available. The IRS stated that more than 21 percent of paper tax filings have errors, while less than one percent of online filings have any mistakes.
Some of these tools provide automated features that not only save time but also decrease the chance of human error. Tax and accounting software provides hundreds and even thousands of error-checking diagnostics that simply indicate mistakes and help prevent inaccuracies when filing taxes for businesses.
Automated technology and new software are changing the way that all data is filed and reported, and tax information is no different. Oversight when it comes to spotting deductions and inaccurate reporting can become a real problem for a business owner’s chance to save. Features such as error-correction and automated data import can help ensure correct filing, and some business owners might benefit from connecting with tax professionals who have experience with these tools.
Another digital tool that might help when reporting taxes is some type of automated data-based that regularly collects and stores important financial information from your company’s activities. There are a variety of apps and platforms that track spending and income. By creating an automated system for storing company data from the start of their companies, entrepreneurs can ensure they have all the information they need for reporting in one place and can make the whole filing process more efficient.
Business Loans and Taxes
Depending on the type of business loan an entrepreneur obtains to jump-start their business, they may qualify to claim deductions related to these loans. By financing a loan, business owners can sometimes claim their loans as deductibles and might benefit from knowing that these loans are not viewed as earnings.
When applying for a small business loan, lenders will typically ask how long you have been in business. The longer you have been in business, the better. This shows the lender that your business has been successful, which increases your chances of getting the loan approved. Typically, lenders require you to have been in business for at least two years before being able to qualify.
PRO TIP — If a business loan is refinanced or your debt is forgiven by the lender, the amount forgiven will then be considered income that you should report on your tax return.
Founder of Source Capital Funding and finance expert, Sacha Ferrandi claims “With any loan, you need to be able to show lenders you have a good financial credit history, both personally and for your business. This will show lenders whether you are responsible for your finances and if you will be able to pay back the loan. The higher your credit score, the better, as it gives you more loan options and heightens your chance of getting approved.” Failing to pay taxes may eventually ding your credit score.
Depending on your business income, and your industry, you will be required to prepare taxes for your business on an annual or quarterly basis. Ideally, you will be able to deduct the interest paid on your business loan since it is not the amount that you initially borrowed. The amount that you are repaying is not considered a business expense.
As the borrower, you will receive a specific form according to the business loan you were approved for, which will be stating the total amount of the interest paid throughout the year. All this information is heavily important to your accountants or tax preparer, which is why you need to be highly organized when running a business. A piece of information lost when it comes to filing taxes can harm your business and can cause issues with the IRS.
IRA Accounts and 401(k) Plans
If entrepreneurs are able to reach a point where they’re looking at offering their employees retirement investment programs such as 401(k) plans, they’ll want to know about all the potential benefits as well as how their tax filing might be impacted. The government does implement some measures to encourage 401(k) programs, and knowing how to claim expenses and deductions while looking at possible savings might help owners decide whether it makes financial sense to offer these types of investment options to employees.
Business owners might even see their tax payment reduced after implementing a 401k program thanks to government tax credits with some money back for the cost of implementing the program into your company. One important note is companies that provide matching benefits will not be taxed on that money and neither will their employees, but the money employees contribute will be. Another benefit is that businesses can also claim this as a part of their deductions for company expenses when filing taxes.
It’s also helpful for entrepreneurs to know what investment options become available to them if they initiate a 401(k) program.
PRO TIP — Business owners in early stages of their ventures can take advantage of retirement investment programs such as those offered to every individual, like a Roth IRA as well as their company’s 401(k) at the same time maximizing their investment options.
Taxes play a powerful role in our economy and can make a strong impact on whether new business owners decide to take a chance and launch their new businesses. While everyone pays taxes, the way business owners file taxes for their companies varies and can make a big difference when it comes to savings and growth for their venture, so it’s imperative that entrepreneurs consider how to report income accurately, efficiently and reasonably.
However entrepreneurs decide to approach their taxes, they should be well-informed through thorough research and be aware of how their unique situation should inform their tax plan. Once a business owner has a solid understanding of how different aspects of their business change their taxes, they can seize opportunities to save and can also rest assured that help is available when they are unsure about the process.
In the end, a detailed look at how taxes affect your new business can be the difference between overpaying, major savings and long-term growth.