[Daily Tips] 5 Tax Things to Do for Your Business

Tax time is just around the corner. In my two decades as a professional bookkeeper working with small-business owners and solopreneurs, I’ve come across some common sticking points that make taxes especially challenging for business owners. Here are five things you can do to help prepare for your 2016 returns.

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1. Get Educated
If you’re hazy on taxes, or you just don’t understand them, then it’s time to get educated. (You’re not alone: When NerdWallet asked more than 1,000 American adults 10 questions related to income tax, the average score was 51 percent.) In my bookkeeping business, I’ve found that more often than not, new clients know very little about how taxes work. Even worse: They’re afraid to ask about it out of fear of looking unprofessional or uneducated.

There are several tax forms you should understand if you are self-employed, the most basic being the federal forms 1040 and the Schedule C. If you don’t have an accountant who can sit down and explain these forms line by line, consider hiring one for an hour as a private tutor. These forms — and our current tax system — aren’t likely to change soon, so learning about them now will likely prove helpful for years.

2. Avoid a Big Tax Bill
Over the years, many people have asked me how they can save on their taxes. This is an important question, of course — all of us want to save money. But the single best thing you can do to avoid a big tax bill is to simplypay your taxes. Tax debt can be crippling, and penalties and interest rack up quickly, making it nearly impossible to get out of the tax debt cycle once you’re in it.

The only way to avoid a major tax headache is to pay your estimated taxes faithfully every quarter. A good rule of thumb is to put away 20 percent of all deposits in a savings account, and then turn those funds over to the state and federal government once a quarter. (Your estimated taxes are based on last year’s income, so if you’re having a banner year and sales are rising, be sure to raise your tax payments too.) Your accountant should provide you with estimated tax forms and the amounts due for each quarter. These are usually sent to you with your tax return for the previous year and are easy to overlook, so if you can’t find them be sure to ask.

3. Set Up a Bookkeeping System
Good bookkeeping means you’ll have accurate numbers to work from when you file your tax returns, which will help you get the most deductions. But let’s be honest — bookkeeping and accounting rank as some of the least enjoyable tasks of owning a business. The good news is that bookkeeping is much easier than it was even five years ago. Most bookkeeping apps connect right to your bank and credit card accounts, so transaction data is automatically pulled into the system — cutting way down on the time you spend doing (ugh) data entry. And these programs are getting smarter: You can “train” QuickBooks Online to remember your favorite suppliers, vendors, and stores so it will automatically categorize transactions to the right account, for example.

4. Get the Right Support
I see many small-business owners hold on to subpar business relationships that aren’t fulfilling their needs. But just like in our personal lives, bad relationships need to go. Wealth building and financial stability are dynamic, and you have to be engaged regularly and probably for your entire life. For this reason, it’s critical the relationships you have with your accountants and financial advisors are strong and are serving you well. If your accountant doesn’t map out tax strategies (or worse, doesn’t return your calls), it’s time to say good-bye.

Take inventory and see if the relationships with your financial professionals are working for you. If not, it’s time to put a little effort into finding “the one” — your dream relationship with a financial pro who is invested in you and your business. There are many smart, talented people who can help you save money on taxes and achieve financial success. The best way to find these people is to ask for referrals from colleagues you admire.

5. Save, Save, and Save Some More
I’ve heard business owners loudly object when tax preparers or financial advisors encourage them to save money for retirement. Many say it’s impossible to save when overhead costs are so high, and right there lies the mistake. Your retirement savings is part of your overhead — just like rent, labor, or utilities. And saving for retirement can also provide tax savings now or in the future, depending on the type of investment vehicle you use.

There are many retirement options available to small-business owners, including the SEP (self-employed pension), SIMPLE IRA, solo 401(k), and others (here’s a breakdown of retirement options).

The sooner you start to consider retirement savings as a non-negotiable expense, the better off you’ll be. And make sure to get it set up with automatic withdrawal. You’re more likely to save, and harness these tax benefits, if saving isn’t yet another task on your to-do list.

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