Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
There's a lot to think about when filing your taxes. The process can be even more complex for business owners like you because of the many tasks you need to accomplish. If you’re a beginner in the field, the lack of knowledge and the intricate details of calculating, collecting, and filing taxes can be overwhelming. Many tax rules and regulations, especially with sales taxes, are always subject to change.
That’s why it’s important to get organized. Doing taxes right will ensure you won’t get in trouble with the Internal Revenue Service (IRS), and your business can run smoothly. With that, here are nine tips you can apply and the help you can get from remote bookkeeping companies in case you’ll need to partner with one.
1. Get your tax information right
The first thing you need to do is to register as a taxpayer. You must ensure you get your basic information correctly, such as your name, address, and contact number. You should also determine your tax status or business type. Owners must determine whether your business type is a sole proprietorship, corporation, partnership, cooperative, or limited liability. What you declare will determine the taxes you need to pay.
2. Know which taxes should concern you
As a business, you’ll be concerned with corporate taxes, sales taxes, your personal income tax, and the income taxes of your employees (if you have any).
Corporate income tax: These taxes are applied to all companies. Companies need to pay duties based on their total annual income.
Personal income tax: Owners and shareholders of a company should also declare their personal income tax. This is based on their total income for the year.
Employee income tax: And if you have employees, it is your duty to compute, deduct, and remit income taxes of your employees.
Sales taxes: All the goods you sell, unless classified as tax exempt, are subject to sales tax. Buyers pay this, but it is your duty to compute, collect, and remit them.
3. Know the different tax forms
The paperwork does not stop after registering yourself as a taxpayer. It is only the beginning; the next step would be to familiarize yourself with these many different tax forms.
- W-9: The W-9 contains your Taxpayer Identification Number (TIN). It is the form to give whenever an office, organization, and eCommerce platform requires a TIN submission.
- W-2: If you have employees, you should submit this form on behalf of your employees. It contains employees’ total income for the recent tax year.
- W-4: Your employees will submit the W-4 form to you, their employer. This form includes details on how much tax you should withhold and remit from your staff’s gross pay.
- 1042S: This form that declares income is for foreign business owners.
- W-8BEN/W8-BEN-E: To be approved as foreign sellers and become non-US taxpayers, business owners need to accomplish the W-8BEN/W8-BEN-E forms. After doing so, they will be issued a Foreign Status Certificate.
- 1099: There are two kinds of 1099 forms, the 1099 interest income and the 1099 miscellaneous income. The first comes from banks and financial organizations that pay you interest. You should declare the deposit on your income tax return. The latter declares a freelancer/self-employed person’s total income from clients.
- 1098: A form homeowners accomplish to declare mortgage interest.
- 1040: The basic form you’ll accomplish to declare your annual income tax return.
While some of the forms here don’t apply to you, it would be best to familiarize yourself with those that do.
4. Discover when tax exemption applies
While most individuals and transactions are taxable, there are also tax exemptions. For instance, a state defines a certain non-taxable income which, when satisfied , can exempt taxpayers from paying taxes. When organizations function solely for charity, religion, education, and scientific research, they are tax exempted.
Regarding sales taxes, there are also various tax exemption rules. For example, certain goods, like food and groceries, are classified as non-taxable as they are necessities. The regulations vary per region as sales taxes are determined per province or state. A financial transaction in one state may be exempted in a certain state but may be taxable in the other. Hence, as a business owner, you should check for specific rules on a grassroots level.
5. Be concerned about non-payment repercussions
To give you a little more push to take taxes seriously, declare accurate values, and pay on time, you should also be aware of the repercussions you might face if you fail to become a good taxpayer.
- The IRS can seize assets and bank accounts to acquire the tax payments you fail to pay.
- They can also charge interest to you, so you’ll end up paying the tax debt plus the interest.
So, instead of suffering these consequences, it’s in your best interest to be a responsible taxpayer. You can also make use of various tax assistance from the IRS. Some of these are as follows:
- Communicate a payment arrangement to the revenue officers that is a win-win for you and the IRS.
- You can also apply for tax relief to reduce the charges and bills you need to pay.
- Be honest about the payment terms you are capable of. Your state's internal revenue organization will help you find reasonable terms to pay off your debt.
- Report immediately to explain why you could not pay taxes instead of waiting to be called out.
6. Do bookkeeping and accounting early
One important part of tax preparation is to begin bookkeeping and accounting early. Bookkeeping tracks all financial business transactions and organizes them into categories. When tax season comes, you’ll have all the data you need for the tax declaration.
Meanwhile, accounting can help you understand how much tax you’ll be paying. Your accountant can generate tax and financial reports for you, so you can set aside tax payments immediately and not spend them on business operations. Business owners like you know very well that the after-tax income is your real income, and the money you should spend to make your business thrive or grow.
In case you cannot squeeze these tasks on your plate, you can always rely on a remote bookkeeper or sign up for a virtual bookkeeping service.
7. Invest in bookkeeping, accounting, and tax software
Not only should you collect financial data, but you should also ensure that you get all the details accurately. One way to achieve this is to invest in software that captures financial statements and documents and converts them into usable text data. This method takes away the possibility of human error in manual data entry. You can rely on Dext Prepare, Shoeboxed, and Wave for this task.
Meanwhile, don’t fall short of reliable, investment-worthy online bookkeeping and accounting software. Check out Quickbooks Online, Xero, Sage50 Cloud, and Freshbooks. These tools can help you track the income and expenses of your business; they allow bank reconciliation, the creation of invoices, inventory management, and report generation. Experts in a virtual bookkeeping service company also use these tools to ensure accuracy and efficiency in bookkeeping for your business.
8. Plan and forecast your taxes
Getting ready for tax season doesn’t only mean minding how much you need to pay for the current tax year. You can always enact tax planning to forecast how much you’ll spend for the next quarter or even in the next tax year. You can make this area a part of your business forecasting.
When you see how much you need to pay in advance, you can plan how you can lower your taxes. You can also ensure that you set aside the tax amount you have calculated to avoid using it for other expenses. Finally, you can also plan how you will spend your after-tax income to scale your business.
9. Seek help from experts
You will be faced with a lot of costs when running a business. So, you may think that doing accounting and bookkeeping on your own is the way to go. Besides, it is one way to save some costs. If you have experience, then you can probably handle these yourself. However, for those who aren’t trained for it, it is still best to seek help from experts because of the following reasons:
- Trained and licensed individuals, those who are Certified Public Accountants even, will handle your bookkeeping and accounting.
- All financial transactions for the year will be put together and updated timely.
- Bookkeepers and accountants will utilize software to ensure data accuracy.
- You’ll receive financial reports regularly and as needed.
Remote Bookkeeping Business By Unloop
As a small business owner, it’s important to know everything there is to know about taxes. It’s beneficial to know the different tax laws and regulations that apply to your industry. You can avoid costly mistakes and penalties by understanding the basics of tax preparation and filing. The tips we’ve shared should give you a good starting point, but if you need more assistance, don’t hesitate to reach out to a virtual bookkeeper, accountant, or tax specialist.
What is remote bookkeeping? Remote bookkeeping services is what we do. At Unloop, we provide:
- Small business and eCommerce online bookkeeping services
- Accounts payable management
- Forecasting
- Payroll solutions
- Tax management
We’re experts in the field and we can help you get a head start on your business’s taxes. Have more questions? Contact us today for a free consultation!