Are you filing small business taxes for the first time? Tax preparation and planning are vital parts of owning a company. You’ll need to be sure it’s filed accurately and in a timely manner, which can be stressful. Along with state taxes, federal taxes are another area you’ll need to focus on.
6 Tips For Safe Tax Preparation and Planning for SMBs
Not only will you want to make sure your taxes are completed properly and on time, but you’ll also certainly want to maximize your tax return and claim all your deductions as well. Here are suggestions to follow to help ensure your first time filing taxes is successful:
1. Cash vs. Accrual Basis
Small business tax services recommend that one of the first steps you take is to analyze your business situation when deciding if you want to prepare your tax return on an accrual or cash basis. Under the accrual basis, your income is recognized by being effective when it’s earned and expenses are recognized when they are incurred. Under the cash basis, however, income becomes effective when it’s collected, and expenses are recognized as they are actually paid. If you have a small business accountant, he or she will most likely go with a cash basis if your new business has more unpaid expenses than paid ones. Later, as business begins to pick up, the accrual basis may work best for you.
2. Depreciation Method
For optimized tax preparation and planning, you’ll need to choose a depreciation method. In the first year, the Internal Revenue Service (IRS) will allow up to $1,040,000 in deductions for furniture and equipment. You’ll be able to elect if you want to take the deductions all at once or to write the cost over five or seven years. There are advantages to both ways of figuring out the deductions. A small business tax service can help you make the most advantageous choice, but with some research and analysis, you can figure it out on your own if you want to do so.
3. Home Office Deduction
In your tax preparation and planning, you’ll want to deduct for your home office if you are a sole proprietor. That is when you deduct a portion of your residence if it is used in conducting business. The area must be used only for business when you claim it, however. It is figured by the square footage. You cannot take this deduction if you are claiming a loss through. But, if you do claim it, you are also able to deduct such things as landscaping and maintenance as well.
4. Non-Employee Compensation
Non-employee compensation is an area that many small business owners forget about or don’t completely understand. This deduction comes from independent contractors you’ve paid during the tax year. To set it up, you give any contract for whom you pay $600 or more a 1099-NEC rather than a W-2 form, as you do pay to your regular employees. Failure to report wages paid to an independent contractor gives you a false gross income, which means you’ll owe more in taxes.
5. Automobile Expenses
Be sure to file your automobile expenses because there will be a deduction. Keeping an auto log is highly recommended by most accountants who work for small business companies. Record where and when the travel took place, who was driving, and if there was business conducted on the trip. Each vehicle should be kept separately as it will be filed separately.
6. Self-Employment
You’ll need to prepare for paying self-employment taxes, as it will be a significant part of your federal taxes for small businesses. It includes Social Security and Medicare tax, which is part of your total taxes. Monitor your available cash flow to ensure the amount covers self-employment tax.
Hire an Expert Small Business Accountant for Reducing Your Business Taxes
If the points above and the process of filing federal taxes for small businesses is overwhelming to you, you can get help with your tax preparation and planning by hiring a small business tax service.
Maintaining and managing healthy cash flow is key for small businesses, particularly if your business is seasonal in nature, like a construction or landscaping business. Remember, work tends to wax and wane with the seasons and you will need to consider the slow times during more prosperous times of year in order to survive. Without adequate cash flow, you won’t be able to pay vendors, payroll, or rent during the off-season.
Create a Statement
The first thing to do is create your cash flow statement to track money coming in and going out of your business. The aim is a positive cash flow year-round, to meet your financial commitments and responsibilities.
Forecast your Cash Flow
Once you have constructed your cash flow statements, you can develop a cash flow forecast for the next year. This will demonstrate the highs and lows of the company due to the season which helps you better predict and prepare. This also identifies if you need to figure out a plan to gain additional capital to supplement the slower seasons in order to survive. If you spot a potential issue, begin to apply for help and financing before it becomes an emergency; a cash flow forecast helps you do this.
Collect What is Due
To increase your cash flow, become more assertive about collecting what is owed to you. Have a payment policy in place that rewards prompt payment for service. Make payment arrangements short-term and aggressively go after outstanding debts. Be persistent with patrons that are slow to pay and request deposits on scheduled projects or products to generate more incoming cash.
Play with Payments
Play around a little bit with creditors in terms of extending payments a bit longer during the slower months. Stretch out payments during the off-season if the creditor is open to this to give you more time to collect from those that owe you, too.
Cut for a Cushion
Cut back and create a cushion for your business. Reduce what is going out and increase what is coming in to prepare for the slower season; it is as simple as that. Come up with creative ways to increase offerings during these times, while cutting down on services, subscriptions, and payments that you are making to help build your nest egg.
Get with a Program
Invest in an accounting software program, like QuickBooks, that is user-friendly and inexpensive. This software will help you create cash flow statements that allow you to monitor and assess your fiscal situation at a glance. This allows you to adjust and identify issues before they become financial crises.
Talk to a Professional Today
Remember that hiring a financial planner and accounting professional is the most prudent and practical way of sustaining and surviving during all seasons. Work now to preserve cash flow and build reserves for later. Don’t wait until times are tough to reach out for help; plan ahead and talk to the industry experts at BMH Accounting today.
Want to see improvement in your business or brand’s bottom line? Pay attention to your company’sFinancial Variables and discuss these influences with a qualified accounting professional to determine if your revenues can be improved, or to learn more.
Five financial variables that can improve your bottom line are:
1) Look at your Profit & Loss Statement
When was the last time you looked at your Profit and Loss (P&L) statement? This document lays out your revenues, expenses, and costs during a determined period of time.
All public companies are responsible for issuing these statements quarterly, as well as at the end of the fiscal year. Reviewing and understanding a P&L statement can help you evaluate your business’ fiscal health.
2) Know the Shape of your Finances
Over half of small businesses are negatively impacted by late payments; how are your finances? Make a resolution to pay invoices on time and save late fees and charges. These expenses impact your cash flow and bottom line, over time.
3) Get Familiar with Your Cash Conversion Cycle
The cash conversion cycle (CCC) measures the amount of time that it takes to move inventory, get paid, and, in turn, pay your own creditors. This cash flow determines how long between payments as well as how quickly you can turn-over your product.
A familiarity with your CCC can indicate if you have a healthy cash flow as well as how long your company can survive in tight times.
4) Become More Aware
Part of your business self-awareness comes from checking out your financials. Develop and revisit a cash flow forecast and business budget for your company.
It makes good sense to set aside a time, such as the end of the fiscal year, to review all your management practices and financial habits with a reliable and reputable accountant. Don’t have an accountant? Make now the time to retain one.
5) Tally Cash on Hand
Do you know how much cash and liquid assets you have on-hand? It may surprise you; sometimes, companies don’t have as much readily available capital as they think – and need- which could put you in a bind if business is slow.
Don’t risk the fiscal health of your company; take time to count up what you have on hand for liquid assets, i.e. cash, and begin to think about setting up a rainy-day fund.
Making changes or deciphering financials for your business can be confusing; make sure to discuss your options further with your accountant before altering the way you operate your company. These industry experts may be able to help guide and advise you on the best ways to reach a better bottom line.
Want to learn more about these financial variables, or other ways to enhance the condition of your company? Talk to the accounting professionals atBMH Accounting; they are familiar with financial variables that can make a significant difference in the overall value of your business investment.
A small business failure can be surprising in terms of what led to the demise and how it may have been avoided. There are some common errors that many small business owners and entrepreneurs make that lead to problems that cannot be overcome. Subsequently, it is these errors that often lead to the end of the company or business.
Avoid these 5 key mistakes that lead to a small business failure:
Money Issues
Probably the biggest reason for small business failure is money; aim to keep your overhead as low as possible and track all your expenses. Be frugal, even when you don’t need to be and be on the lookout for ways to monetize and further improve your bottom-line. Always have a goal of streamlining your operations in efforts of curbing costs and improving revenues to succeed.
Too Big, Too Fast
Another reason small companies don’t succeed is that they try to take on too much, too fast. Start small, such as a pop-up shop or an event like a festival or fair to learn the market. Some businesses assume there is a market for something only to discover that there simply is not; know the market before investing.
No Back-up Plan
Have you heard the expression, ‘prepare for the worst but hope for the best’? That should be your mantra when it comes to your small business. Always have a back-up plan and anticipate, even expect, things to occasionally go wrong or askew. That is simply part of doing business. Make sure that you are fully covered in areas like insurance, staffing, and that you have a slush fund ready for a rainy day.
Lack of Business or Industry Experience
Are you sure that you fully understand the market that you are taking part in? Surprisingly, many businesses fail due to a lack of understanding of their market. For example, some restauranteurs may not understand the time, commitment, and money that it takes to open a restaurant in a specific area. Many successful companies encourage entrepreneurs to go with what they know.
Underestimate the Undertaking
Speaking of underestimation, make sure that you are well-aware of the effort and time that go into making a business successful. Remember that you will have a wide range of obligations, from marketing and human resources to serving clients and keeping facilities clean. Make sure that you never minimize the work that it will take to make your endeavor a success.
These common issues are not always a result of the business owner making rash or compulsive decisions, but rather may be related to the industry, current market, or other unforeseeable circumstances that impact revenues and force closure.
For help keeping your business matters precise and timely, reach out to BMH Accounting, Don’t let mismanagement be the reason your business fails to thrive and succeed; get the accounting assistance that you need.
When it comes to employee reimbursements, you must be careful that they comply with current tax law and IRS tax regulations. If not documented and posted correctly, expense reimbursements may get confused for income, which can create a mess. Furthermore, when your staff struggles for prompt and accurate reimbursements, it can create hostility and angst at the workplace; make things a lot easier with the services of a tax or accounting professional and a solid accountable plan.
Employee Reimbursements
Using an accountable plan to document and pay employee expense reimbursements means that the payment is not part of your employees’ wages which makes them exempt from taxation, like federal income or employment taxes. This has benefits for both the employee and your company, as well. If you choose not to use an accountable plan for reimbursements, the payments are subject to taxes and considered part of your staff’s taxable income.
Business Connections
Remember and remind employees as needed that each reimbursed expense under your accountable plan needs to be connected to business; the definition of a business connection is that it is a legitimate expense- allowable as a deduction- and covered or incurred by your employee while they are performing services, tasks, or work for your company. Some examples might be hotel accommodations during a business trip, meals during work-related events, or gas driving to job sites or to visit clients. These expenses should be easily documented with receipts, bills, or statements.
Employee Accountability
Depending on the accountability system that you have in place for your Employee Reimbursements, it is key that a paper-trail documents the expenses and that any excesses are accounted for and paid-back. There are some IRS guidelines that can be adapted and adopted to your workplace- or you can set your own parameters for reimbursing employees quickly and also tracking expenses accurately. It is key to keep these matters clear and concise for when tax time rolls around.
Prompt Payment
Just as it is important for your employees to substantiate expenses promptly, it is important that you do what you can to expedite reimbursements, too. A reasonable time frame for substantiation of expenses is within 60 days, and any overage should be paid within 120 days, in most cases.
Tax Tips
Your employees may deduct their work-related expenses, but it requires itemization.
The deduction for these expenditures is limited to the amount that is more than 2% of their adjusted gross income.
Make sure that your reimbursement arrangements meet IRS requirements for an accountable plan, which may have potential tax advantages for you.
The safest way to deal with employee reimbursements is with a reputable and reliable tax or accounting professional. Talk to the experts at BMH Accounting to learn more and escape the worry surrounding employee reimbursements.