Finance
5 Hacks to Simplify Your Small Business Tax Compliance
Running a small business can be rewarding, yes, but also exhausting – it requires a tremendous amount of work on a daily basis, work that at times may seem like it requires superhuman effort just to stay afloat. It also involves taking risks and dealing with financial and legal issues on a regular basis.
Take taxes as an example: while a complex and time-consuming process, filing taxes accurately and on time is the only way to avoid penalties and legal issues.
Thankfully, there is plenty you can do to make your tax season, at least, more manageable and less stressful. The key is to streamline the entire process and, in doing so, reduce your tax liability and save time (and even money) so you can focus on other tasks that can help you grow your business.
Here are five hacks to help you do just that.
Always Maintain Accurate Records
This is not a hack per se, but it forms a basis for remaining tax compliant: keep detailed and accurate financial records, including records of your income and expenses throughout the year. Additionally, make sure the information about your employees is up-to-date and accurate.
It’s also important to have a well-organized system. For example, you might find tax season much easier to manage if you keep all your (paper) receipts, invoices, and financial documents in one place. When it comes to digital files, which we hope you have more of than paper files, keep them organized and easily accessible by using cloud storage.
Use Technology to Automate Processes
More often than not, filing taxes involves repetitive tasks that just waste your time (and patience). To both reduce the risk of errors and save time, take advantage of any technology that can help you automate and streamline these processes.
If you have employees, consider using payroll software that automates calculations and makes payroll management more manageable. This can be particularly useful when you’re navigating complex state-specific tax requirements.
For example, Georgia has six different tax brackets and payroll is progressive, while Illinois has a flat income tax rate of 4.95%.
For the sake of simplicity, let’s say your business is in Illinois – instead of manually calculating gross pay, net pay, and deductions for all your employees, take advantage of tools such as OnPay’s Illinois payroll tax calculator. All you have to do is input wage and W-4 information for each employee and let the calculator do the rest.
Allocate Funds for Taxes Regularly
To avoid any surprises and remain organized throughout the year, set aside a portion of your income regularly to cover your tax obligations. Having a proactive approach to your taxes will not only help reduce your tax-related stress, but also prevent any cash flow issues when taxes are due.
Consider creating a tax calendar with important dates and deadlines so you can plan accordingly. If you want to be better organized and keep the funds for taxes separate from your operating expenses, you may also want to open a separate bank account specifically for tax payments.
Categorize Expenses, Maximize Deductions
To maximize deductions, take full advantage of all the business expenses you can deduct. From office supplies to travel costs to marketing expenses, every deductible expense adds up and can help lower your tax bill.
To do this though, you first have to categorize and track your expenses properly. Again, this is where technology can be of immense help – there’s no need to manually track and categorize expenses when there are lots of expense-tracking apps and software options that can do this for you.
Doing so can not only ensure you remain tax compliant but also provides a clear window into your business’s financial health.
Stay Updated on Tax Laws
Tax laws and regulations can change frequently, depending on your state, which can impact how you file and what deductions you qualify for. To ensure you are compliant at all times, do your best to stay informed about these changes. You can do this by subscribing to IRS updates or following other reputable tax resources.
The other option is to consult with a tax professional or advisor. While managing your finances in-house can save money, it can be particularly time-consuming when your team is expanding or if you live in a state with complex tax laws.
In such cases, outsourcing tax preparation to a qualified professional can be a wise investment. This way, you personally don’t have to stay on top of changing tax laws and regulations but leave that to the professional.