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.
Whether it's a huge corporation or a humble startup, all business owners have one thing in common to accomplish— taxes! In the same way, when tax season comes, all business owners like you are concerned with tracking all your business transactions, computing your income, and ensuring what you will declare are accurate. Despite the same tasks and time to accomplish taxes, there may be one thing you and your fellow CEOs do not have in common: accounting and bookkeeping before tax season.
Most successful businesses do not only think of their company expenses during tax season— they have their accounting and bookkeeping updated throughout the year. If you want to acquire this best practice, we have just the solutions for you. Keep on reading to learn more!
Income Tax Rates Explained
What exactly do you need to file before the tax deadline and as a business owner? What are the income tax rates of federal income tax? Taxation is a complicated and technical topic, but here are some basics you need to know.
Individual Income Tax Rates
You and your employees should be paying personal income tax, which is computed based on your income tax bracket and the tax rates mandated by your government. For example, check out the income tax rates, Canada version. You will see in the tax table the specific income brackets that have corresponding federal tax rates. The rates are applied to your taxable income determined by the law and applied by your bookkeeper and accountant. This standard deduction is applied monthly. Filing also makes you eligible for an individual income tax return.
Corporate Income Tax
Corporate income tax, on the other hand, is the taxes you pay for your company income. The advantage of having a bookkeeper that updates your books regularly is that they will update you on your taxable income and how much taxes you'll be paying regularly. Tax computation works similarly to how individual taxes are computed— rates increase as income increases.
Why Is There A Need To Pay For Income Tax?
A taxpayer should pay because it serves as the government's way of acquiring funds to provide necessary social services for its constituents. Since the law requires it, individuals and corporations should abide by paying income tax and different tax types.
Accounting Assistance You Need
The process of tracking your business finances all year, computing the income tax rate, and filing before the deadline are just a few steps to accomplish your taxes. Still, to a busy owner like you, these tasks are better delegated to professionals. Doing so will give you time to focus on your operations management tasks. Here are the people and tools you can rely on.
A bookkeeper is responsible for entering all the data about your income and expenses into the proper categories. They also check your bank transactions to monitor the money coming in and out of your account. Your bank transactions should match the data in the books.
Your payments are received, and you give out the amount you owe to your suppliers because the bookkeeper monitors every transaction— even the dates on when payments are sent and received. Hence, they are also the people to count on to document all invoices and store receipts. With all data and transactions stored, a bookkeeper ensures you do not need to cram on acquiring data when tax season comes.
Now, after all the data is stored, categorized, and updated by a bookkeeper, the accountant uses all this data. The accountant ensures that all the information you have about your business will make sense by creating essential reports, such as an income statement, balance sheet, and statement of cash flows. You may also personalize these reports based on your company's key performance indicators and what you prioritize. Through an accountant, you'll have a clear picture of your business's financial health.
Aside from reports, you can also have consultation sessions with your accountant about the financial impact of your business decisions. Accountants can create simulated financial statements about your plans so that by the end of the day, you will choose the game plan that has the most gains and least losses. For taxes, a Certified Public Accountant (CPA) will handle the filing of your taxes.
Aside from human assistance, several accounting software will make your business bookkeeping and accounting safe, protected, and automated. Some of the most reliable tools you can check are Quickbooks, Hubdoc, and A2X.
Quickbooks: Quickbooks is one of the most popular accounting tools today because it offers live bookkeeping, accounting, payroll management, payments, inventory management for eCommerce sellers, time and project tracking, and invoicing.
Hubdoc: Hubdoc, on the other hand, is the tool you need in converting receipts to data. You can integrate Hubdoc to Quickbooks.
A2X: If you are an eCommerce seller on Amazon, eBay, Shopify, Etsy, or Walmart, your accounting is made easier as this tool accounts for all marketplace transactions. You can also integrate this tool to Quickbooks, so you'll have a single software to look at for business finance updates.
When tax season comes, you or your accountant must acquire the data from these tools for seamless tax computation and filing.
How Professionals And Reliable Tools Help With Income Tax Rates
Now that you know what income taxes are and the assistance you can get, you must think that getting help from experts and acquiring accounting tools is the way to go for your business. Here are more reasons to urge you to make this wise decision.
Bookkeepers will track and categorize your cash flow.
As you begin your business, transactions will be few, but you can still use cash accounting and manage it independently. Cash accounting is taking note of transactions as they happen. However, as you grow your business, you'll witness how your receipts grow as much as the number of invoices you need to make. With this, it is better to monitor your cash through accrual accounting when transactions happen, even when there is no payment yet.
A bookkeeper ensures that transactions are categorized into assets, liabilities, expenses, equity, and revenue and further classified. These data are up-to-date and checked regularly for accuracy, so there is no need to backtrack on a whole year of transactions when tax season comes.
Bookkeepers will determine which transactions are taxable.
Not all transactions in your business are taxable, and having a bookkeeper ensures that taxable and non-taxable income is categorized right away. If you are doing bookkeeping on your own without experience and in-depth knowledge of taxation, this area may be a bit challenging. So, it is better to delegate it to experts. Nonetheless, here are some taxable and non-taxable income you should know.
- Company wellness benefits like gym or yoga membership, counseling sessions, company-paid learning fees
- Cash gifts and awards (the giver will be taxed)
- Different miscellaneous payments under the same category above
- Healthcare benefits
- Disability insurance
- Life insurance
- Cash gifts if you are the receiver
The classification may change depending on your country's tax laws, but for sure, not all of your income will be taxed. A bookkeeper can help you pinpoint which income will be and will not be taxed.
Accountants are well-versed with tax laws.
Messing with taxation laws is a serious mistake as you can be penalized and fined for non-compliance and even inaccuracies. CPAs are well-versed with the rules, and part of their expertise includes income tax rates/federal taxable income. If you have employees, your accountant will determine and compute tax deductions per employee.
An accountant will also pull data from the books maintained by the bookkeeper to check how much corporate tax you need to pay and pay it before the deadline. As a result, you do not need to worry about getting fines and penalties from your tax department if you fail to pay or pay the wrong rate.
Accountants help in tax planning.
The work of accountants does not end in helping you compute and file your taxes, but they also help in proactively ensuring that you minimize the taxes you need to pay as you expand your business. This process is called tax planning.
Here, the accountant will help you decide when and where to make purchases and how much you will buy at specified times. Gone are the days when you decide day by day. With an accountant, every step you make in your business will have an equivalent monetary value, so you can always see which plans are most profitable and which will cost you more. With this, you can always go for the winning option.
Accounting tools are excellent for data storage and tracking.
Excel is free and available on most computers, but there are many disadvantages in using it— such as data inaccuracy, susceptibility to crashing and being corrupted, and public access. You cannot risk essential financial information about your business to be under such threat, so it is best to consider using cloud accounting software.
Cloud accounting is the safest way to store your data because it is stored in a computer while the information is kept in the cloud. As the owner of the company, you determine who has access to the cloud, and because it is stored there, you do not need to start a computer where the excel document is saved. You can access cloud accounting data anywhere there is the internet. Accounting tools are excellent for data storage and tracking.
Accounting tools compute taxes and show you income after tax.
Bookkeepers, accountants, and reliable accounting tools have already got you through the tax payment season, but their assistance does not stop there. The profit will be finalized after paying your taxes, but even as your bookkeeper updates your accounts, they can compute the income after tax right away. With this, you'll know how much profit you will have, and you can plan what you will do with your profit.
Some business owners choose to invest their profit in expanding their business, while some save it until it is enough for financing their growth plans. Some owners pay debts or keep their money for emergency needs. No matter what your plans are, you have visibility of your profit in numbers.
Income Tax Assistance From Unloop
No matter how complicated income tax is, with the trained people handling the task, it can be done and can be accomplished excellently. So, whether you have a startup or a full-grown company, never forget the essence of having a bookkeeper, accountant, and accounting tools on your side. Just a tip, look only for the best accounting service provider.
If you agree and are looking for a team you can partner with, Unloop welcomes you! Bookkeeping, income tax, and sales tax are our expertise. We can assist you in making tax year bearable as we'll keep your books updated and your business finances tracked. If you'd like to know more details of these services, we are just a call away at 877-421-7270. Hope to talk to you soon!