I’m willing to bet that thinking about your business taxes ranks somewhere between going to the dentist and cleaning under your fridge. And yet, we can’t escape them. But burying your head in the sand will only cost you money. Instead, be proactive in your planning so that you’re more efficient, pay your taxes on time, and minimize what you have to pay. Business taxes are due March 31, 2016, but personal taxes are due April 15, 2016.
Tip 1: Sock it Away Year ‘Round
Waiting until April to come up with what you owe in small business taxes is a bad idea. It not only puts a strain on your finances, but you might not be able to pay it all at once, and then you’re wrangling with a payment plan with the IRS. Which is no fun.
Instead, try putting aside about 20% of your gross revenues. Put it in a high-interest savings account or money market account so you’re not tempted to dip into it, and so it will make a little money for you until tax time. Then, when that tax bill shows up in April, you can pay it without breaking a sweat, especially if you have making quarterly tax payments.
Tip 2: Maximize Your Home Office Deductions
You have two choices for calculating your home office deduction: the standard method and the simplified option. The standard method requires you to calculate your actual home office expenses. The simplified option lets you multiply your home’s office square footage, but your office must not be larger than 300 square feet and the IRS only allows you to claim $5 per square foot or a maximum deduction of $1,500. You can also deduct any miles you put on your car. The standard mileage rate is the easiest because it requires minimal record-keeping. The standard mileage rate is 57.5 cents per mile for 2015.
Tip 3: Make Any Key Purchases Before the End of 2015
If you are going to have a lot of cash on hand at the end of the year, you can make major purchases for your business to minimize your tax exposure. Pay some regular vendors in advance, purchase any equipment needed, inventory or office supplies. The goal is to reduce the amount of cash on hand.
Tip 4: Stay on Top of Your 1099s and W-2s
You are required by law to send all 1099s for contractors and W-2s to employees by January 31, 2016. Delaying this could get you penalized by the IRS, and your employees and vendors need this paperwork to complete their taxes. Make sure you have up-to-date W9 and W2 forms on all contractors and employees so in January you have what you need to submit the forms, either online or print then and mail them yourself.
Tip 5: Hire a Tax Accountant
For many, small business taxes are fairly straightforward, especially if you’re filing them through your personal tax return, but if you are set up as an S corporation or LLC they could be more complicated. And if you do business in multiple states you could have complicated taxes. When it comes to business taxes you’re safer working with a professional who is up-to-date on tax law.
When you plan ahead, you can save yourself a lot of headache come Tax Day in March or April.