Tax season is one of the most stressful times of the year for many small business owners. This is largely because we tend to wait until the last minute instead of preparing our taxes throughout the year. Reduce your stress by implementing the top business tax saving tips we share on tax prep, tax deductions and filing your tax return.
One of the ways that you can save money on your taxes is by using QuickBooks Online, our recommended accounting software for small businesses. QuickBooks can help you keep track of your income & expenses so that tax time is a breeze. Get started and get up to 50% off QuickBooks Online.
Here are the top 24 business tax saving tips to help you during tax time:
1. Use Payroll Tax Software to Avoid Costly IRS Penalties
Did you know that approximately one-third of all companies get fined each year for incorrectly handling payroll taxes? This is due in large part to the fact that around 40% of businesses with employees try to handle payroll on their own, using paper or spreadsheets without the assistance of a third party.
Don’t get caught in this trap. We recommend Gusto for all your payroll handling needs. They will automatically calculate, deposit, and file your payroll taxes for you – and their US-based customer support means that help is easy to find when you need it. Sign up for a free trial today.
2. Keep Business and Personal Finances Separate
A common mistake of small business owners is to commingle business and personal funds. It’s important to have a separate business checking account and credit card account for your business. This will make things a lot easier when it comes to managing your books and getting deductions organized for tax time. If you are ever audited by the IRS, you want to make sure that you can produce documents that support legitimate business expenses.
3. Get Organized with a Filing System
One of the primary reasons people dread tax time is because they are not prepared, often times causing them to pay more in fines or claim fewer deductions. By implementing just a few things into your daily, weekly, or monthly routine you can remove the stress that tax season can bring on and also save money. Here are a couple of recommendations to get you started:
Set up a Filing System to Keep your Paperwork in One Place
Purchase a dozen expandable folders so that you have one for each month. Label each folder with one of the 12 months and file all receipts, deposit slips, ATM withdrawal slips, etc. into their respective folders.
Block out a Couple Hours Each Month on Your Calendar
If it isn’t on your calendar, it most likely will not get done. However, if you set aside just a few hours each month to organize all of the paperwork in the folder, you won’t have to do 12 months at once. During this time, you want to reconcile your bank and credit card accounts by matching up your receipts with the statements received from your bank.
4. Use Accounting Software like QuickBooks Online to Track Revenue and Expenses
Accounting software can make tax time easy and can help you claim all your deductions. Once you have updated the program with all of your business revenue and expenses, you can quickly create financial statements in just a few minutes to send to your CPA or tax professional so they can file your tax return. If you use QuickBooks Online, you can set your tax preparer up with a user id and password so that they can access QuickBooks and run reports instead of you having to do it.
To learn more about QuickBooks Online and our top picks, check out our accounting software guide.
If you don’t have the time to input data and manage accounting software, let a virtual bookkeeper do it for you. Bench offers help with cash flow management, monthly financial statements, and more starting at $135/month. Get a free consultation to learn more.
5. Take the Auto Expense Deduction
If you use your car for your business, you can deduct car expenses. You can choose one of the following methods to calculate your auto expense deduction:
Standard Mileage Rate
For this method, you would multiply the total miles driven for business by the standard mileage rate for the year. For the 2017 tax year, the standard mileage rate is 53.5 cents per mile.
Actual Car Expenses
You can deduct actual car expenses like gas, repairs, and insurance. However, if you use the car for personal and business, you will need to calculate the percentage that the vehicle was used for business purposes first and then apply that percentage to the total car expenses.
For example, if you drove your car a total of 15,000 miles and based on your mileage tracker 6,000 of those miles were for business then you would divide 6000/15000 which equals 40%. Therefore, you can deduct 40% of your total car expenses as a business deduction.
To learn more you can check out our guide on about how the auto expense deduction works.
To make logging miles a snap, download the free Everlance app. Everlance automatically tracks your mileage, and lets you categorize trips all while effortlessly tracking expenses, including gas, by linking your bank or credit card through the app.
6. Deduct Business-Related Meals
You can deduct 50% of meals that are considered business-related. This includes taking a client — or even a potential client — out to lunch. It could also include ordering pizza for the office as a special treat for your employees. Just make sure that these meals are not lavish or extravagant.
A good rule of thumb is to treat your business finances as if they were your personal funds. Don’t dine at that new restaurant or play a round of golf at that country club just because you can write off half of the cost. However, if those are places that you wouldn’t hesitate to spend your own personal money then you should be ok to take the deduction.
To learn more about the expenses that you can deduct, check out our travel expenses guide.
7. Use Independent Contractors Instead of Employees
Most business owners when just starting out cannot afford to hire employees because they have to pay payroll taxes and provide other benefits, in addition to wages. By hiring an independent contractor, you do not have to pay benefits or payroll taxes.
However, make sure that you understand the difference between an employee and an independent contractor. If your independent contractor meets the legal definition of an employee, you could face penalties. Refer to the hire a contractor or employee article posted by the Small Business Administration to learn more.
Be sure to read our article on independent contractor requirements to learn more.
8. Take the Section 179 Deduction
The section 179 deduction allows you to recover the full cost of equipment or property up to $500,000 for the 2017 tax year ($1 million for the 2018 tax year) that you purchased for your business in the same year that you purchased it. This beats recovering the cost over a period of time – like 5 or 10 years – through depreciation deductions.
Check out our Section 179 calculator to find out how much you can save.
9. Consider Setting up a Retirement Plan
A retirement plan can provide several tax benefits for you, your business, and your employees. Below are just a few of the benefits:
- Employer contributions are tax-deductible
- Assets in the plan grow tax-free
- You are able to attract and retain better employees
10. Choose the Right Business Structure
How your business is structured can have a significant impact on the taxes that you pay. For example, LLCs are pass through entities which means that your profits will be taxed at your ordinary tax rate, while shareholders of a C corp are taxed at the corporate rate and then again when they report distributions on their tax returns, this is known as double taxation.
Read our best business structure guide to learn more about the types of business structures and how to choose one that saves you the most money at tax time.
11. E-file Your Tax Returns
To have confidence that your tax return is received on time, you should file electronically. By filing electronically, you will save the money that you would have spent to send your return via snail mail. Most tax software programs like TurboTax allow you to e-file your federal tax return for free as long you have a tax ID number. If you need to file a state tax return, you can easily do that with TurboTax for an additional fee.
When you e-file, you receive a confirmation number after the IRS has successfully received your tax return. This is a much better alternative than dropping your return in the mail and wondering when or if it will be received. If you are expecting a refund, chances are an electronic tax return will be processed much faster than one received via snail mail.
If you are planning to do your own taxes, check out our tax software guide to see our top picks.
12. File Your Taxes on Time
Do your best to file your tax return on time. If you fail to file your tax return on time and pay any taxes that are owed (in addition to interest), you will be assessed the following penalties:
- Failure to file on time – The minimum penalty for certain tax returns filed 60 days late or more is $205. If you owe less than $205 then the penalty is 100% of the unpaid tax. Otherwise, the penalty can be as much as 5% of your unpaid taxes each month up to a maximum of 25%.
- Failure to pay on time – This is based on the amount of tax you owe, and it will continue to accrue until the tax bill is paid in full.
If you are able to file your tax return on time but you do not have the money to pay your tax bill, go ahead and file the return. By filing the return, you can at least avoid the failure to file a tax return penalty. There are several penalties that may be eligible for relief. There is a way to appeal a penalty using an online tool. You can find more info here with the IRS.
13. Take Responsibility for Your Return
If you do hire a CPA or tax professional to prepare your tax return, have them go over the return with you. Make sure that you understand and agree with the information they are reporting and take responsibility for the income and deductions you claim. Your signature at the bottom return means that you agreed 100% with what is being reported about your business. At the end of the day, the IRS will hold you (not the tax preparer) responsible.
14. Check out the IRS video portal
To help you stay on top of changes to the tax code that could save your money, the IRS has a video portal that is dedicated to small businesses. This library includes over a dozen videos, including topics such as:
- Business Expenses
- Business Income
- Small Business Taxes: The Virtual Workshop
- Starting a Business
Bottom Line – Business Tax Saving Tips
Now that we have shared some of our business tax saving tips with you, what are some of your favorite business tax savings tips? Use the comment box below to share those with us. We would love to hear from you!
One of the best business tax saving tips is to make sure you don’t miss out on any tax deductions and sign up for a free QuickBooks trial. QuickBooks makes it easy to track your income and expenses throughout the year so that when it’s time to file your tax return, you can just give your tax professional access to your QuickBooks data; which will have everything they need to file your tax return.