Starting and heading up your own business can be challenging, to put it mildly. From deciphering legal jargon and obtaining all the necessary permits and licenses to hiring the right talent and managing operations, new entrepreneurs need all the support they can get.
So to help relieve some of the pressure that comes with starting a business, we’ve compiled some basic tax tips.
Check Your Legal Structure
We’ve mentioned before [DC1] the different types of legal structures your business can take—sole proprietorship, LLC or corporation—and the tax advantages and disadvantages that come with each. While choosing the structure that fits the size and scope of your business is very important, it is equally important that both the IRS and the state in which you operate recognize your business as having that structure.
The IRS has been known to recognize an organization as having one structure while the state categorizes it as another. This means the protections (say, against being sued) you think you have could be nonexistent. Be sure to contact a certified financial expert or lawyer to make sure your legal structure is consistent across the board.
Keep (and Store) Good Records
It is well-known that accurate bookkeeping is often a key difference between struggling businesses and thriving ones: Businesses that have a hard time managing their tax information end up incurring more unnecessary penalties than their more organized counterparts.
It is less well-known, however, that you should hold on to your tax records not just for three years after you’ve received your return, but for as long as you’re in business. The reasoning for the three years rule is that this is the period in which you are allowed to make amendments to your return. So if there are changes to make, errors to sort out or if you are called to justify deductions you claimed, you will have the money-saving proof on hand.
There is additional confusion as many people cite a seven year recommendation for legal purposes, but the truth is that records need to be maintained indefinitely if assets are to be held for many years. Having your tax records for the life of your business could prove invaluable down the road when you are considering selling it.
Maximize Your Deductions
The sooner your business can start making a profit, the better. One critical step toward minimizing your tax obligation as a business owner is knowing what you can write off. Generally speaking, you are allowed to deduct all ordinary and necessary expenses–including travel, equipment, consultants and other expenses for valid business purposes, such as meals and refreshments (just make sure to save your receipts). And with the Affordable Care Act, some small businesses may be able to qualify for a health care tax credit and have the federal government cover a significant percentage of their employee premiums.
Of course, these tips are just a brief summary and do not include all the savings available to small business owners. To find out more about how you can maximize your return and save as much money as possible this coming tax season, contact us today to schedule an appointment.