As a small business owner, you have both the luxury and burden of wearing many hats.
Unfortunately, most small business owners don’t come with built-in tax knowledge (unless your small business is bookkeeping, payroll, or CPA).
In this case, just about everyone starts with only a rudimentary perspective, and trying to wrap your head around an ever-changing tax code can seem like a daunting task. Fortunately, as professional bookkeepers based in San Francisco and San Rafael, the team at Books in Balance does know a thing or two about tax preparation, and here are four essential tips we recommend as starting points for small business owners.
Four Essential Tax Tips For New Small Business Owners
1. Prepare early
It’s never too early to start looking at your next year’s taxes. Even if it’s the day after you received your refund, there are still plenty of things you can do to try and get a leg up. This can be anything from thinking about your method of tabulation to the way you handle your payroll and expenses.
Remember, it’s always easier to course-correct something ahead of schedule rather than try to fix from the ground up as a major tax deadline approaches. Consider all the ways you can organize, calculate, project, and communicate well in advance of the day you actually hand your forms off — it may seem like a big hurdle to do the first time, but once you get over the hump, it will get easier with each passing year.
Suggested reading: 9 Absolute Steps To Early Tax Prep
2. Understand the new laws
The massive GOP tax overhaul of 2018 was so big that CPAs and tax professionals are still figuring out the consequences in early 2019. Case in point — the new 20% net rental income deduction used the vague description that the property had to be run to the level of a “trade or business,” and it wasn’t until recent months when that was clarified to be 250 or more dedicated hours of service to the property.
Those types of ripple effects are still being hashed out, and some things won’t be implemented until the 2020 tax year. The result is an extremely complicated reboot of tax laws, so it’s best to understand how the changes affect any areas of revenue you generate, be it rental property, capital gains, small business, non-profit, or other avenues.
Suggested reading: New Pass-Through Deduction Clarifications For 2018 Taxes
3. Understand your balance sheet
If you’re running a small business, you should know how a balance sheet works. That’s a universal truth, and some business owners shrug this responsibility with hopes that it all turns out all right. In general, that’s a bad idea — the more you know and the more organized you are, the better. So get going with the basics and understand your balance sheet. It may mean the difference between running a profitable business and overseeing a sinking ship.
Suggested reading: What Makes Up A Balance Sheet?
4. Hire a payroll service
Do you have employees working for you? Regardless of whether they’re payroll W2 employees, contractors, or a mix of both, a payroll service can set you up to make sure their numbers are accurate, including taxes taken out of each check or on quarterly estimates. A payroll service can also handle all W2 and 1099 preparation for you, taking the guesswork out of complicated IRS forms so you can simply focus on what you do best. There are some circumstances when such a service isn’t necessary — such as if you only use 1099 contractors several times a year — but in most cases, it’s worth checking out what a payroll service can do for you.
Suggested reading: What Should Small Businesses Look for with Payroll Services?
Tax Help for San Francisco and San Rafael Small Businesses
Still not sure where to go with your tax preparation? The journey to simple and straightforward tax filing starts with quality documentation and accurate numbers. We invite you to get in touch with Books in Balance for a free initial consultation by filling out this form.
Not only do we love helping out small businesses, we’re confident we can help you get organized and prepared so tax season doesn’t induce any financial anxiety. Contact us today!