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Small Business Tax Strategies Newsletter
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The economic climate continues to be depressed due to the COVID-19 pandemic. About 12% of small business owners say financial stability is their most important challenge, second only to losing business and attracting new customers.
Tips To Maximize Deductions And Credits In 2023
It’s no surprise then that taxes—a bill that appears at the end of each fiscal year—are the second most important problem for small businesses in the US.
Managing your payments for your retail store doesn’t have to be a headache. This guide shares how taxes affect your business, with 15 bonus tips on how to make tax season more stress-free.
Note: This guide is provided for informational purposes only and is not intended as a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
Every small business owner in the US needs to pay taxes. While the exact amount you’ll pay varies by state and business structure, taxes are one of the biggest costs associated with running a retail store. The average small business pays 19.8% tax on its income.
Build A Successful Accounting Team
As well as being one of the biggest business expenses, taxes are one of the most important taxes. Small business owners who file taxes late, inaccurately, or not at all face fines or, in extreme cases, criminal prosecution.
Good news Small business taxes are not as complicated as you might think. A certified public accountant (CPA) can help you legally reduce your tax liability so you don’t have a huge bill at the end of the year.
The last thing you want to feel like is broke when it comes time to pay. Here are 15 tax-saving tips to help you set up and manage your small business account year-round.
Many taxpayers feel they need a new dictionary to understand their tax returns. The world of accounting comes with its own special terminology. Take the time to learn jargon that will help you understand the financial situation of your business.
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Lily Wiley, founder and CEO of NiaWig, puts this into practice: “Small business owners often ignore the difference between their net and gross income.
For example, if your product costs $100 to make and sells for $150, your gross profit will be $50. However, after deducting your expenses, your net income might be $10. So it is very important to understand your gross and net profit to increase profitability and grow your company.”
💡 PRO TIP: To view net sales, cost of goods sold and gross profit, check out the Financial Summary page in Admin.
One of the easiest ways to solve tax problems is to record personal expenses as business expenses. The more information you have on your business and personal tax records, the less likely it is that the IRS will find errors in those records. Daniel Kane, founder of The Ridge Wallet
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Having separate bank accounts for business and personal transactions makes tax time easier. Not only will you have clean and accurate expense records, but your personal transactions will be protected.
Speaking of clean data, tax season will be easier to navigate if you have accurate reports. Pull up bank statements to reconcile receipts or invoices for receipts and expenses. You can use accounting software that does this for you (more on that later) or a free tool like an invoice generator.
Free samples are an underreported cost, as Dan Luth of Ignite Spot explains: “Sometimes people will just adjust it and mark it as a reduced inventory when it’s actually a marketing expense.
It is very important to ensure that it is properly reported in your financial statements. Not that it’s going to give you a huge extra advantage, but it helps you understand what your business is comparing to, so when you’re evaluating preparation for year-end taxes, [people] are looking at the right information. . You know what you’re actually using for marketing costs, just for inventory adjustments. Dan Luth, Partner at Ignite Spot Accounting Services
Small Business Tax Deductions (+11 You Should Never Try)
Credit card points are often miscalculated. Scott Scharf, CTO of Acuity and co-founder of Catching Clouds and Acuity, said, “When you buy $1 million worth of inventory, that’s a lot of points. And when small business owners do take vacations, they can go and be completely first class—all covered in points.
“Very few people track reward points as a boon for a business. The only thing that will come out is an audit. It must be listed as income. “
Tax season is stressful for any business owner. This guide will guide you through the US income tax filing process and provide checklists to keep you organized and prepared.
We will also post updates on new educational guides and success stories. We hate spam and promise to keep your email address safe.
Year End Tax Tips For Small Businesses
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Still using spreadsheets to manage your small business taxes? The risk of error is much higher. Human error can result in inaccurate tax returns—a situation you don’t want to be in.
Dan Luth of Ignite Spot adds that “Excel isn’t going to give you completely accurate information. It will not generate financial reports for you. It won’t tell you who your biggest sellers are or what you bought from your biggest sellers this year. “
You should never file your corporate tax return without consulting a competent tax professional or using a tax software program to help you calculate the deduction. Gerry Smith, CMO at Joy Organics
Lower Your 2022 Tax Bill With The Best Year End Tax Strategies
Accounting software exists to solve this problem. Platforms like QuickBooks, Xero, and Sage integrate with your ecommerce store – saving time, reducing errors, and automatically generating reports that help you understand your business finances.
Based on our own data, we saw a spike in searches for ‘cash’ apps on the Xero App Store between February and July 2020 as small businesses deal with the impact of the global pandemic. We hope this app remains popular as it really helps small businesses like retailers to understand how their business is doing and what the future might hold. Damien Templing, Chief Global Strategy Officer, Xero 5. Pay Estimated Quarterly Invoices
The IRS requires small business owners who anticipate having more than $1,000 at the end of a financial year to make quarterly payments. Estimate your year-end tax bill and contribute to your year-end statement by completing Form 1040-ES by the following date:
“This is important because there are no withholding taxes on business income flowing through your personal return,” says Tim Yoder, tax and accounting analyst at Fit Small Business. “Sole holders who report business income on Schedule C must make quarterly returns that include self-employment and income taxes.”
Tax Changes For 2022
As a small business owner who employs staff, you have a legal obligation to report, withhold and pay employment taxes.
Payroll apps like Gusto, ClockedIn, and Homebase can help you manage payroll and pay employment taxes. You’ll see when wages are due, track employee hours, and comply with employment laws, all in one dashboard.
People who use payroll solutions are less involved – oftentimes they forget what their obligations to them are and who they owe money to, whether it’s the IRS, the state, or their benefits organization. Dan Luth, Partner at Ignite Spot Accounting Services
Over time, especially if they file on an accrual basis, they should be able to actually deduct those expenses in the reporting period, rather than actually reporting them when they are actually paid two or three months later. “
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Another metric you’ll see on your small business tax return is cost of inventory — the dollar amount you tied up in unsold inventory.
“Retailers need to determine the cost of goods they sell throughout the year,” says Tim Yoder, tax and accounting analyst at Fit Small Business. “Doing these calculations manually is very time consuming and error prone. Invest $50 to $80 per month for a quality accounting package with inventory tracking, such as QuickBooks, Zoho Books, or Xero.
Also, if you run multiple retail stores, it’s a good idea to choose an inventory management system that acts as a single source of truth for inventory-related data.
If you don’t use one central place to manage that inventory, or even outsource the retail sales that go with it, it’s going to be more complicated because you have to link that information. Dan Luth, Partner at Ignite Spot Accounting Services
Small Business Interest Expense Deduction
Scott Scharf of Catching Clouds, an Acuity company, says, “You should at the very least keep track of your inventory every month—whether it’s in your garage, warehouse, 3PL, Amazon FBA—everywhere.
“Accurate inventory counts and accurate inventory costs—both those numbers and reasonable (albeit slightly gross) finances—will net you quite a lot.”
