Tax Day looms ever closer on the horizon, taunting business owners and consumers alike as they attempt to navigate through piles of paperwork and meet unforgiving deadlines. If you're a small business owner, it's likely that legal matters revolving around expense reports, estimated quarterly taxes and legitimate expenditures have your pulse racing a little faster as April 15th grows closer.
Even worse, you never know how many seemingly innocuous errors might be lurking in the corners of your file cabinets -- threatening to expose your business secrets, steal your hard-earned money, and threaten your business's longevity.
While tax season may seem frightening, you can ensure your business will survive by following Rocket Lawyer's legal tax survival guide.
1. Don't fall victim to deadline hoaxes.
This might seem like an easy one, as it's not uncommon for small business owners to presume that their taxes are due on April 15th. Unfortunately, this is when tax season trickery comes into play. Generally, self-employed individuals are required to pay a quarterly self-employment tax (a Social Security, Medicare, and Income tax). If you fail to make your quarterly estimated taxes, you may be targeted for an audit once you finally do get around to it. Simply put, paying on time may mean paying less.
2. Activate your secret weapons.
Accounting will become one of your most worrisome threats if left unorganized. If you simply stash your receipts, invoices and expenses in a folder and forget about them until tax time, you are setting yourself up for failure -- especially since one of the biggest ways to save at tax time is to keep track of all legitimate expenses that you incur throughout the year so that you can deduct those expenses from your tax burden. Luckily, there are plenty of easy, cheap and effective secret weapons for you to choose from. A few include:
- Freshbooks: a cloud-based, automated billing and expense-tracking, Fresh Books allows you to create and send customizable invoices, automatically track your expenses and track your time by project and task.
- Outright: another cloud-based bookkeeping and accounting program, Outright's primary focus is to make federal taxes easier by effortlessly categorizing your expenses into IRS approved tax categories.
- Shoeboxed: an online cloud-based storage space, Shoebox enables you to organize your receipts effortlessly so you never have to dig for a receipt again -- and you'll have your important records backed up, just in case.
3. There's power in numbers.
Two vs. one ensures better odds, and when it comes to conquering small business taxes, deductions, and credits, a trusted tax advisor is just what you need. It's often not clear whether or not your business is entitled to a credit or deduction. As a result, the best way to ensure that you aren't overpaying on your taxes is to enlist the help of a professional tax adviser. In most instances, the savings you'll capture with their assistance will more than make up for the cost of services. With proper diligence you can limit the total tax liability of your business. That means you'll have more money to invest in growing and maintaining your company down the road.
4. Avoid an identity crisis.
An important rule of survival is to confirm that your business entity is still the right fit for your company -- choosing the right structure allows you to reap more benefits. And don't forget, each type of business has its own strengths, weaknesses, and tax implications. Regular corporations ("C Corporations") and their shareholders are subject to a double tax. Meanwhile, LLC owners have the option to be treated as a disregarded entity (like an "S Corporation") which means that the LLC's profits can be passed through to its owners to be treated like regular income, allowing them to avoid the double taxation issue. What's right for one business isn't necessarily right for another, so make sure to consult with your lawyer or tax professional if you're wondering what's right for you!
5. Open the trapdoor.
When it comes to tax season, trapdoors only exist to fool you. A room of possibilities lies behind those trapdoors, mainly in the form of hidden deductibles. You can receive deductibles for a multitude of items, including: your business car, employees' pay, retirement plans, business interest, taxes and insurance. Even more surprising to some -- you can receive deductibles for your work furniture and equipment, travel expenses, meals and any tax advice that you receive! So what are you waiting for? Walk through that door.
By utilizing Rocket Lawyer's legal tax survival guide, you can confidently tackle any obstacles in your path, efficiently file your taxes, and move on to focus on your business's growth.
Lisa Honey is the Business Lead for Rocket Lawyer's Legal Documents business line. She left the traditional practice of law after seven years in commercial and civil litigation to join Rocket Lawyer. She's licensed in California, Texas and Arkansas.