By Shiloh Johnson, CPA and founder of ComplYant, a technology platform giving entrepreneurs a simple way to manage tax rules and requirements.
Tax time is no one’s favorite time of year, but it also means added stress for business owners. When you own a business, there is a lot more information to be aware of and tax compliance requirements to maintain so you don’t have the various taxing authorities coming for you. While dealing with tax as a business owner can be tough, we’re breaking it down so that, in 30 easy steps, you can feel good about your tax situation and have a strong idea of how to move forward.
In the third and final installment to our three-part series, here are steps 21 through 30 to help you navigate the craziness of tax season as a business owner. For the first two parts, visit this prior post for steps 1-10 and this one for steps 11-20.
Step 21: Schedule monthly business money dates.
It is important to have a firm grasp on your business numbers. One way to do that is to schedule monthly business money dates. These are days when the only thing you do is focus on financial transactions. You can send invoices, review expenses, pay bills and make sure you’re putting money aside for tax payments. A good time to do that is at the end of the month. Doing this monthly can boost your money confidence and make sure you know what’s going on with your business money.
Step 22: Hire based on your weaknesses.
If you end up hiring help, you can deduct their wages on your tax return. A smart way to hire is to find someone who can help you in the areas of your business that are a struggle. Do the activities that bring in money and hire someone to help you get control of what is costing you money. Side note: Be careful not to hire someone to take over your money tasks without first ensuring that you have some kind of grasp on how the money works. This will help prevent fraud.
Step 23: Get insured.
To protect yourself as a business owner, look into types of business insurance. The type of business insurance you need will vary based on your profession and business structure. One little-known fact is that commercial umbrella insurance covers the things that other insurance does not as an extra layer of protection. As well, any settlement received from an insurance payout is not subject to income tax.
Step 24: Use a payroll system.
Payroll tax is a headache, especially in today’s pandemic gig economy where employees are all over the globe. Using a tool like Gusto can help to keep payroll tax at bay. It also helps to set payroll tax reminders to free up brain space.
Step 25: Sign up for online payments.
One way to simplify tax requirements is to sign up for online payments with the federal and state tax authorities. For example, with the IRS you can sign up for EFTPS, which stands for Electronic Federal Tax Payment System®. You can use this tool to make both past tax bill payments and upcoming quarterly estimated payments. Signing up for online payments can save you from sending checks that can get lost in the mail. Besides, who has paper checks anymore?
Step 26: Schedule quarterly budget reviews.
A budget is pointless if you don’t take the time to assess how your spending lined up with your budget. This is particularly important when it comes to business budgets since the dollars are higher and the risk of error is greater. Once a quarter, you can comb through your business expenses and see how they line up with what you said you’d spend. Is there anything surprising? Anything you can ditch or lower the cost of? Did you overspend on marketing or underspend on supplies? Think of it as a self-audit; this can help you make changes along the way and greatly decrease the risk of overspending. This is particularly helpful with startup founders sticking close to their burn rate.
Step 27: Stay on top of business registration, licenses, certificates, etc.
Each state has different business tax requirements, and the likelihood that you will need some sort of business registration, license or certificate to operate as a business owner is pretty high. These usually need updating each year, so make sure you know which types of licenses and registrations you need and sign up for email reminders or put reminders in your online calendar.
Step 28: Make strategic donations.
Donations can be tax-deductible, which can lower your tax liability. As a business owner, you can make strategic donations on behalf of your business to places you support so you can make an impact and reduce your tax bill. Be sure to keep good records and do your research to make sure the organization qualifies.
Step 29: Consider filing as an S-corp.
Review your business structure and make sure you understand how it affects your tax liability. There can be costly mistakes for taxing activities under the wrong structure. One way to save yourself from frustration is to become an S-Corp, which helps you effectively ditch the 15.3% self-employment tax.
Step 30: Look at cash flow.
Cash flow is crucial to your business and tax planning. Take a look at what’s coming in and going out and when. Understanding your cash flow can help you forecast for the future and be better prepared come tax time.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.