Maintaining the right records, being transparent in your filings, hiring the best experts for the job are some important tax tips for small businesses in 2020. Read on to know more.
Every year thousands of entrepreneurs start their own businesses with the hope of making it big. Like everyone else, they face adversities, challenges and hardships in the initial years of their entrepreneurial journey. However, in addition to focussing on their business, they also need to take care of all the legal and taxation areas regarding the same.
If your business is going well, you might not find these legal and financial commitments to be too overwhelming. However, most business owners and entrepreneurs I know are of the opinion that these issues have a major impact on the mental space of someone.
In other words, it is mentally taxing and physically draining because of a number of reasons. In this article, we are going to help business owners with five important tips to prepare them better for the taxation processes.
List of 5 Best Tips to Prepare your Small Business for Taxes in 2020
- Structure your Business for Maximum Tax Gains-
Many people are of the opinion that how a business is set up has a great impact on its taxation. For example, if your business is a Sole Proprietor Model, the taxation would be different than if it were a Single Member LLC.
This is why it is important to consult business attorneys and taxation experts and structure your business accordingly. Once you take into account cumulative taxes over a period, you will start seeing the differences for yourself.
2. Never Mix Your Personal Income with Business Income-
If you really want to attract the attention of the taxation authorities please go ahead and link these two areas! Experts warn business owners that merging the two areas- personal income with business income is likely to lead them into a lot of troubles.
Financial analysts point out that the IRS looks suspiciously and investigates all such cases. This is because they want to identify commingled money. It is essential that your bank accounts are completely separate from one another under all circumstances.
3. Be Honest and Transparent in your Records-
Many people think that they can evade the authorities by giving them limited information and records. While this strategy may work for a year or two, it is nevertheless going to catch up. Authorities take strict action when they find a pattern to your financial under-reporting.
This is why it is essential that you are always honest and transparent with the IRS, the State Revenue Departments and other agencies. You need to understand that if you get caught, it could lead to serious fines, license and permit cancellations and even some jail time.
4. Work with a Taxation Expert-
Taxes can be confusing and complex to deal with. Business owners usually have too many things to concentrate on in terms of improving their business. They prefer assigning all the taxation related work to experts and professionals.
A seasoned tax veteran can be your company’s biggest asset. When it comes to sales tax filing, or income taxes, or even property taxes, you can rest assured that it is being done in the best manner possible. This will allow a business owner free time to concentrate on other areas.
5. Maintain a record of all Transactions-
According to experts, an average small business pays upwards of ten different kinds of taxes. This means that there is a ton of paperwork and record-keeping, which you need to maintain as a business owner.
It is important that all transactions and filing records are properly maintained and be available whenever you feel the need for the same. This shows that you are a responsible business and will help you when it comes to raising capital or seeking loans from banks.
The Final Word
If you really want to set your business up for long term success, paying attention to taxes is very important. By following the five tips mentioned in the article, you can prepare your business up to deal with the taxation maze in an effective manner.