Starting your own business can be both daunting and exciting. Not sure how to properly set up your business or manage your business taxes? Set yourself up for success with these tax tips for startups and small businesses.
Track Expenses
Diligently tracking expenses will help you at tax time, and put you in good graces with your tax attorney. Proper recordkeeping is crucial to keep your expenses in good order throughout the year. The IRS publishes a list of which records you need to keep for tax purposes. To simplify your expense tracking, use online tracking software or work with a tax attorney to implement a system that works for you.
In addition to keeping records of what you purchase for your business, be sure to track business mileage and try to not mix personal and business expenses. If you do happen to buy something for your business with personal funds, promptly reimburse yourself and track the transaction.
Classify Workers Properly
Are you hiring employees or independent contractors? This decision isn’t a simple nuance; it can have a significant impact on your taxes. For an employee, a business needs to withhold payroll contributions for Social Security, Medicare, and state and federal taxes, as well as pay Federal Unemployment Tax and potentially provide benefits such as health care.
Independent contractors are in charge of their own tax payments. However, the IRS looks closely at how a company classifies its workers. If the business has significant control over the worker, then that worker should be classified as an employee.
Take the Home Office Deduction
More than two-thirds of all small businesses start at home, and the IRS allows home office space to count as a deduction at tax time. There are two requirements for the home office deduction: that the space in your home is the principal place of your business, and that it receives regular and exclusive use.
A simplified option for claiming the home office deduction was rolled out in 2013. It allows business owners who meet the criteria to deduct $5 per square foot of office space, up to 300 feet.
Consult with a Tax Attorney or Accountant
There are scenarios where it makes sense to consult with a tax attorney or accountant, especially at the start of your business. Tax attorneys can help you incorporate your business into a legal business structure. They can review and comment on contracts, and, in the case of an audit by the IRS, they can represent you in court.
Tax accountants can set up your business accounting system and make sure it complies with government requirements. They can close out your books at the end of the year, and can submit your business taxes. They can also help set up payroll taxes and represent you during audit proceedings.
Tracking your expenses, classifying your workers properly, researching the home office deduction, and consulting with a tax attorney or accountant are all ways to help your startup or small business run smoothly from day one.
