What Entrepreneurs Need to Know About Taxes
Even though April seems pretty far off from now there are already important tax-related deadlines for small business owners quickly approaching. For example W-2s for all of your employees must be sent out no later than January 31st. Even if you normally have an accountant or other tax professional prepare your business’s return there are a few more things that you should know about your taxes.
CBS Money Watch recently highlighted four things that every small business owner should know about taxes. Their first tip is in regards to bookkeeping.
The truth is that many entrepreneurs simply aren’t as organized with their receipts, invoices, and bank statements as they should be. To make tax time easier for yourself (and, more likely, your accountant) you might want to invest in bookkeeping software, such as Xero or Quickbooks, that can link to your accounts. This will not only simplify filing taxes but could also help you get a better grip on your businesses finances overall.
Reviewing Tax Returns
Another part of keeping up on your business finances is knowing where you went wrong during the year and what costs can be cut. That’s why it’s important for small business owners to retain a copy of their tax return and look it over thoroughly. It’s a good idea to discuss your return with your accountant so that they can fully explain everything it contains. Additionally if your business suffers a loss, the prior year’s tax return can be amended to account for that.
Does you small business have employees of freelancers? It’s important to know the difference. Anyone working for you on a 1099 (as opposed to a W-2) is a freelance contractor and should not be on your books as an employee. However, just as you’re required to supply each of your employees with a W-2, you must provide all of your freelancers with their 1099s for the prior year by January 31st.
Lastly if you work from home there could be some confusion as to just what exactly you can count as business expense. While you are allowed to deduct part of your mortgage or rent for a home office, the room in question must serve only as an office. Unfortunately this means that putting a desk in your living room does not allow you call that a home office. On a similar note be sure to track the mileage on your vehicle when it is used for business. This can be accomplished by simply keeping a mileage journal or by using an app like TripLog .
Although many entrepreneurs are happy to simply turn their financials over to an accountant and have them file a return on their behalf, small business owners should ultimately take a bigger interest in their taxes. Not only will this allow you to better understand the financials of your business, but it could also allow you to find deductions you could qualify for in the future with a few minor changes. Happy tax season!