The following small business tax tips will go a long way in reducing the stress resulting from Uncle Sam’s demands upon your income. Two things cause stress when it comes to taxes. The first is being unprepared when it’s time to organize your paperwork. The second comes when the tax bill is higher than you expected. Three tips will focus on the first issue while the last two tax tips will provide ideas for saving through better write-offs and deductions.
Set up a Good Record Keeping System
There’s nothing worse than having April 15th creeping up on you, finally finding the motivation to get your tax records together and then discovering that once again, your tax records are stuffed inside a shoebox. You open the box and all your receipts and statements fall on the floor in a disorganized mess. Worse, you realize you didn’t bother to save most of your receipts last year.
Save yourself this headache next year by making a commitment to create yourself a quality tax record keeping system immediately. It doesn’t need to be anything complicated.
One simple way to do this is to label twelve folders in your filing cabinet with the names of each month. Place each receipt or statement into the correct month and at tax time you’ll only need to organize each month a bit. It will still be a mess, but it’s a more organized mess. Additionally, you now have a place for receipts, meaning you’re likely to save them.
Review and Organize Once a Month
This is a better way to utilize the previous small business tax tip. If you’ll take a few minutes once a month to review last month’s folder, you’ll save yourself an immense amount of time during tax season. Yes, this takes discipline, but it’s well worth it.
At the end of each month, simply organize your records in chronological order inside your monthly folder. Make an accounting of each area you made purchases in. For example, write down items such as postage, rent, utilities, insurance, gas, mileage, Internet fees, etc. Simply add up the monthly totals for each deductible category and make a note of it.
Can you imagine at tax time already having each month organized and itemized? All you need to do at that point is add up twelve months worth of totals for each category and your expenses are done.
Consider a Credit Card with a Year End Expense Printout
A business credit card that tallies up all your yearly expenses and sends it to you at the end of the year is a wonderful time saver. If you make sure to use this card for all business expenses during the year, your year-end credit card statement has every category broken down and itemized for you.
Arrange Your Business Into an S Corporation
Many professionals offering small business tax tips do an injustice to owners when they neglect to tell them about the benefits of an S corporation. Additionally, many people advise using a C corporation. While you need to consult a qualified tax attorney regarding the proper entity for your business, a C corporation is usually best for a company that sees itself growing quite large and one day going public. Unfortunately, most seminar and Internet advice results in small business owners utilizing a C corporation.
An S corporation is usually the correct way to go for the small business owner. One S corporation tactic that will have you smiling brightly every April is calling some of your personal income “dividends”, rather than “income”. If your accountant or tax attorney hasn’t talked to you about the difference between an S corporation and a C corporation, you may want to find a different person for further small business tax tips.
Invest in Real Estate
While this isn’t for everyone, buying real estate investments will do wonders on your quest for tax savings and may possibly be the most important of all small business tax tips.
Buy and hold real estate allows for you to deduct the mortgage interest that your tenants are actually paying off for you. You also receive additional write-offs for management fees, repairs, utilities, etc. When you factor in the depreciation Uncle Sam allows you to take on your buildings, you can offset your income for substantial tax savings through the purchase of real estate.
If this area is new for you, consider going to a local real estate investment club or seminar to learn more about the wonderful tax benefits real estate can bring you.
By following the above small business tax tips, you should be able to not only avoid the stress involved with your taxes from an organizational outlook, but also reduce the tax bill you’ve become accustomed to paying over the years.