Tax Tips for New Small Business Owners

Tax Tips Tax Services Rochester NY Tax Return Online | Tax Tips for New Small Business Owners | Have you recently started your own small business? Congratulations on achieving the American dream! Nowadays, everyone wants to be an entrepreneur in their own right and it’s easy to understand why. There are so many benefits to having your own business, such as being your own boss, picking your own hours, feeling like you are making a difference, doing what you love, and directly seeing a personal impact.

But as we head into tax season, it is hard to overlook the complications that come with owning a small business. Being an entrepreneur adds to your tax filing workload. There are so many more details you have to think about now that you didn’t have to worry about before. 

What you need is a very clear and practical list of tips for filing as a new small business so that you get everything as accurate as possible the first time around. As well as advice on how to get a good deal on a new business that’s just starting out.

Here are a few of the best tax tips for new small business owners:

  • Know Your Structure

There are several different ways your new business may be structured. The structure can greatly affect how you file and how much you may end up owing in taxes, so it’s important to get it right. 

Some of the options available to you include:

  • Sole Proprietorship
  • Partnership
  • Limited Liability Company
  • S Corporation
  • Corporation

If you are unsure what structure is the right choice for you, there are a few ways you can get a better idea of the right direction for your business. Talking to your accountant is the best way to determine the right decision, but you can also consult the United States Small Business Administration, as they have some very helpful resources.

  • Have a Records System in Place

When you are still in the early stages of your business, it is super important to develop an organizational system that will keep your invoices, expenses, receipts, paperwork, bills, and other random paperwork in order. 

You will not regret putting in a lot of work at the beginning to build this system when tax season comes around. Everything will be far less stressful and incredibly streamlined compared to what it would be if you did not have a smart system in place. Additionally, there are incredibly simple and helpful financial software options that can help you keep track of your documents. When it comes time to file taxes, you’ll be able to pull what you need with little to no hassle. 

  • Know What Deductions are Available to You

Do ample research before filing on what deductions might be available to you during tax season. If you work from home, there may be concerns that making a home office deduction could bring about an audit, but the IRS has greatly relaxed its rules when it comes to home office deductions. Some other possible deductions to keep in mind include a computer or device that’s vital to your work, office supplies, internet access, and any travel expenses.

  • Include Expenses for Starting Up

How did your fund your startup expenses? Entrepreneurs use all sorts of funding strategies to make their business dreams come true. Some save up for years while others rely on small business loans or alternative loans like title loans. No matter how you funded the start of your business, you can track those expenses for tax deductions. So, if you had to get permits, register as an LLC, or buy a domain name, be sure to track those expenses and deduct them when you file. 

  • Car Expense Deductions

There are multiple options when looking at car expenses that are related to your small business. The two options include a standard deduction based on car miles or a deduction based on actual car expenses. 

If you decide to deduct based on mileage, then you will need to keep a close record of the miles you’ve driven in relation to your business work. Conversely, if you are taking the actual expense deduction, then you must keep track of all the expenses your car incurs when being used for business. This could include gas expenses and getting certain repairs done. 

  • Keep Health Insurance and Retirement in Mind

Since you are a business owner and therefore self-employed, you are responsible for the costs related to your health insurance and retirement savings. Keep track of your insurance expenses and your deposits into your retirement savings, as most of these expenses can be tax deductible.

  • Your Self-Employment Taxes

If you were involved with a more traditional employment situation, your boss would withhold taxes, Social Security, and Medicare payments automatically from your paycheck every month or every other week. Since you are a business owner, you are now the one responsible for making these payments.

Typically, you will need to make four estimated tax payments every year. And when you file your personal tax return, you will need to pay your self-employment taxes. However, half of this is usually deductible, since it is going toward Medicare and Social Security. The best way to prepare for this is to put some money aside every time you get paid or have big influxes of revenue.

Just like with your previous tax returns, if you overpay, then you will receive a refund. If you didn’t pay enough, then you will owe some extra money to make up the difference. It feels very complicated, but you get used to it over time and with experience the process becomes less overwhelming.

Fear of dealing with taxes as a small business is the last reason to not follow your dream of being an entrepreneur. All you need is a little bit of guidance to make the whole filing process much less intimidating. 

Another thing that could seriously help minimize your stress would simply be to start prepping for tax season as early as possible. Getting a head start can be one of the most calming strategies. If you are ahead of the game and give yourself plenty of time to figure out everything in a leisurely manner, then you are far more likely to feel successful and receive favorable outcomes. 

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