What Business Owners Wish They Knew About Small Business Taxes
When it comes to creating stress and anxiety, there are few things in this world that can go toe-to-toe with taxes. This is especially true for small-business owners—not only do you have to deal with your own taxes, you must also become an expert in the complex world of small-business taxes.
There are a few things that can make your life easier when tax time rolls around, though, including these three:
- Don’t wait until the last minute. Allow yourself plenty of time to handle any issues that come up.
- Make sure your internet connection is reliable. Nothing is worse than losing your connection in the middle of filing and having to redo all that work.
- Learn from those who already know the ropes. Some of the greatest resources you have are your fellow business owners.
To help with that last point, we’ve rounded up advice from ten business owners on how to make filing your small-business taxes go as smoothly as possible.
- If I could go back in time, I would have talked to a CPA immediately upon forming my LLC. I would have asked questions about paying quarterly taxes, deductions and other tips that could help make life easier at tax time. While you can find a lot of information online (including this blog!), every individual and business is unique. Spending a few hundred dollars from the start to ensure you’re taking the right steps for YOU is a worthwhile investment! —Diana Mitchell, owner of Simplified Social
- As a small-business owner, it is imperative that you have a fantastic tax plan in place long before you even begin selling. . . . Going to buy equipment? Is it personal, business, used only a specific project? You need to know long in advance due to the tax implications and how it will affect your bottom line. Nothing is worse than thinking you’re in the black by hundreds of thousands when in fact after audit you are dangerously crimson. —Trave Harmon, CEO of Triton Technologies
- Far and away the biggest problem I see, and the biggest source of IRS tax debt according to the IRS’s own numbers, is unpaid payroll taxes. Business owners can get in very big trouble very quickly by using taxes withheld from employee paychecks and their own unpaid payroll taxes as sources of working capital funding. The IRS takes the position that taxes withheld are not the employer’s money and never were the employer’s money. In fact, small-business owners who do this are PERSONALLY liable for penalties of 100% of unpaid payroll taxes (Trust Fund Recovery Penalties). —Thomas C. Butler, EA, NTPI, CTRS, Acumen Accounting, Inc.
- The thing I wish that I had known before starting my business was how much burden is placed on a business in administering and reporting on taxes. The cash drain in paying monthly withholding and quarterly tax payments is certainly important to understand. But the time and cost in simply managing the reporting requirements quickly grew to be unmanageable internally. I learned pretty early on in my business startup that contracting a professional accountant and hiring a competent bookkeeper was the way to go in a fast-growing business. —Scott Toal, Short Run Pro
- One provision where I know a lot of small-business owners wish they had followed the rules more closely is on the home office deduction. This deduction isn’t the audit trigger it used to be. In fact, the IRS has made it a simpler deduction to claim over the years. However, if you do bend the rules and get caught, it can have a snowball effect. Let’s say the IRS finds that you took this deduction for a space that isn’t used exclusively for your business. They will then have cause to audit multiple years of prior returns to see if you committed this infraction repeatedly and what other errors you might have made. —Jacob Dayan, partner and co-founder of Community Tax
- I wish I knew about all of the tax write-offs that startups get. When I filed taxes for my business, I didn’t research all of the possible tax breaks that small businesses can take advantage of. I’ve since learned that I can write off the marketing, advertising, containers, postage stamps, and even part of my house where I operate my business. I’ve saved tons of money in tax breaks. I love it. —Zondra Wilson, Blu Skin Care
- I wish I had known about setting aside money for taxes with each invoice received and wish other business owners would do that too. I started doing that at the beginning of 2016. Not only did it make making my quarterly payments easier, but I wasn’t as freaked out when tax season came along. I do that with each invoice now: set aside a percentage for marketing, taxes, profits, owner pay, and leave the rest for operating expenses. This lesson helped tremendously with cash flow and actually played a key role in ensuring we were profitable (because we only spent what we had in leftover). —Laura Renner, founder of Freedom Makers Virtual Assistant Services
- I think one of the most common issues I see with small-business owners is incorrectly handling their sales tax. Sales and use tax laws vary from state to state, so if they are selling a product or service over the internet, it becomes trickier to follow proper tax procedures. Probably the best thing that can be done to avoid an audit is to implement some form of sales tax software. There are some great programs that will automate your tax compliance and help you avoid running into bigger issues. —Sam Brotman, owner of Brotman Law
- I wish that I had known that taxes are a major investment of time. As a business owner, it is your responsibility to delegate work and preserve your time for continuing the operation of your business. Hiring a CPA is affordable and a major time-saver. I would recommend it to anyone in any level of business. —Alex Bentzinger, Bentz Creative
- I sincerely wish I had understood the taxes associated with having employees. When I set their salaries, I had not taken into account in my budget just how much I would be paying in taxes for each employee. It was a huge surprise and cost me a large amount of grief. —Tobi Kosanke, Crazy K Farm Pet and Poultry Products
At tax time, you need every advantage you can get. Take the advice of your fellow business owners and make filing your small-business taxes a little easier this year.