Six Tax Tips for Smart Entrepreneurs
It’s every one’s “favorite time” of the year again. As one of life’s two certainties, taxes can be well… the most taxing. But if you’re aware of what you can and cannot do with your money, the better you are.
No. 1 – Never go it alone
Most entrepreneurs like to do things on their own. They take pride in the ability to manage every aspect of a business. However, taxes are the one area where you should seek the help of a well-versed CPA that’s good at guiding you.
No. 2 – Pay your estimated quarterly taxes
Many of us were so used to working for others that we forget that we don’t have taxes automatically pulled from our paychecks any more. So, we pay quarterly estimated taxes. It’s not a lot of fun, but it’s better than being fined for not paying them on time either.
Work with an accountant to figure out exactly how much you need to pay quarter over quarter. Or the state and federal governments will ask you to pay fines at year-end.
Some entrepreneurs will delay filing or paying anything until the end of the year.
They rationalize it by saying it can wait. The problem with this approach is that you need to come up with a big chunk of money at once and be able to pay fines for late payments on quarterly bills.
No. 3 – Set up a retirement plan
Once you’ve figured out what you owe, think about how you can save.
By setting up a retirement plan, you can deduct your contributions to IRAs, and 401(k) plans for instance, which can help increase your tax-deferred gains. Of course, there are contribution limits you must be aware of prior to doing this.
It’s best to check with an accountant.
No. 4 – Keep your business and personal expenses separate
Those new to working for themselves will mistakenly mix personal and business expenses, which can increase the accountant fee for your preparation. The best way to fix this is by having separate checking and credit card accounts for you and your business.
You can always save a little money on taxes with business expenses. However, you must be organized with exactly what you paid. If you fail to keep accurate records, you may as well jump into a shark-infested bay. The sharks be friendlier and easier to negotiate with. Be organized and the better off you’ll be.
No. 5 – Don’t forget your deductions
Those that are self-employed can deduct the self-employment taxes.
This refers to the employer portion of Medicare and Social Security taxes the self-employed people must pay. You can also deduct home office expenses, property taxes, and mortgage interest to name a few. Plus, let’s say your home office occupies 15% of your home. Up to 15% of your electricity bill could then be a deductible. Check with your accountant first in addition to what you can deduct for travel, food, entertainment, and phone use.
No. 6 – Just pay it
You may not like taxes, but you have to pay them unless you’d like your life turned upside down and have a “friendly” tax guy showing up at your front door. If you can’t pay it all at once, let your accountant know. Pay what you can and see if you can set up a payment plan – with interest attached, of course – for the remaining amount.