The tax season is a difficult sea to navigate for any company, but it can be an especially unique challenge for small businesses. While you may have until April to file your taxes, tax preparation should be a yearlong process. Follow these five tips to give your small business a simpler tax season with less stress.
- Know the Important Dates
Depending on the type of business you are operating, there are different filing deadlines that you need to know. For example, if you’re a sole proprietor or a single-member LLC, then your tax deadline will typically be April 15, the same day as personal income tax.
If you have incorporated your small business, then the income tax must be paid three months after your company’s year-end. Corporations have the flexibility to pick a year-end date prior to filing their first year, allowing them to choose a schedule that will best suit their needs. For example, if you have a beauty salon, you may choose a year-end date that falls after the holidays but before the summer wedding rush.
- Fund a Retirement Plan
If the amount of taxes you owe for the year is exorbitantly high, consider making contributions to your retirement accounts. As long as neither you nor your spouse has active participant status, your Traditional IRA contribution is deductible. If you or your spouse is an active participant, then your tax filing status and your MAGI determines whether the contribution will qualify as an additional deduction.
If you have not already done so, consider establishing a retirement plan for your small business. Depending on your annual salary and the type of plan you choose, you may be able to contribute and deduct up to $53,000 a year.
- Work with a Professional
As a small business owner, you probably wear a lot of hats. No doubt you’re competent in your field of expertise, but when it comes to your business’s finances, it’s best to work with a professional. Bookkeeping can be an overwhelming and tedious task, and hiring a tax attorney or accountant will allow you to focus on growing your business.
Even if you currently handle your business’s finances, tax time is a great time to hire an accountant. Their job is to ensure you are organized, prepare your taxes and make certain everything is in accordance with all CRA guidelines.
Tax planning shouldn’t be a year-end scramble. It should involve consistent preparation throughout the year. By establishing a relationship with a tax advocate, you can minimize your risk of an audit while saving money as your small business expands.
- Have Lunch Meetings
Whether you’re looking for a last minute deduction or you want to qualify for more deductions next year, consider hosting lunch meetings. When you dine with your business partners or employees, 50% of the cost of the meal is tax deductible, so long as the meal isn’t too lavish or over-the-top and it is specifically for business.
If meals or entertainment are provided for the benefit of your employees, you can deduct 100% of the cost. Examples of expenses that can be written off at 100% include:
- Free food and beverages provided to the public for the purpose of promoting your business
- Company picnics
- Holiday parties, both in your facility and at a restaurant
- Meals provided to employees as an incentive to work after-hours or on holidays and weekends
- Free coffee, bottled water or snacks provided to employees at the place of business
The IRS looks closely at deductions for meal costs, so be sure to keep proper documentation. There are numerous smart phone apps available that allow you to input the date and location of the meal and upload a photo of the receipt, making it easy to keep a record of it.
- Charitable Contributions
Small business owners are a generous lot. In fact, studies show that up to 75% of small businesses make charitable contributions. A donation to a 501(c)(3) in the form of cash, volunteered services or sponsorship of a fundraiser can be deducted in whole or in part. As always, careful record keeping is a must. In most cases, an organization should provide you with a written statement that it has received a contribution from your business.
Preparation is not only essential to having a tax season that is free from stress and frustration, but it also ensures that your small business receives all of the tax benefits for which it is eligible. By staying organized and preparing for tax season throughout the year, you can be confident that you are making the best financial decisions for your small business.