The US government requires individuals and businesses (within a specific financial bracket) to file and pay taxes. However, the responsibilities, requirements, and implications are vastly different. When an individual works for an organization, their taxes are deducted before receiving a paycheck. At the beginning of tax season, they receive a W-2, which reflects the amount they’ve paid. When a person files their taxes, they either owe the federal and local governments or receive a refund.
However, a business is responsible for reporting its income and expenses quarterly or annually. They must have an accurate, honest, transparent, and detailed accounting of their operational costs and generated sales. Based on these reportings, the government determines how much the company owes. If the company’s financial reports are inaccurate, the organization over or underpays on taxes, which leads to financial strain and legal consequences.
Why Taxes Should Be Part Of Your Company’s Financial Plan
While many business owners focus on tracking revenue and expenses, including taxes in their planning needs to be noticed. Of course, taxes get overlooked for many reasons, including lack of awareness, ineffective accounting, and greed. However, when you omit tax planning from your financial strategy, it gives way to problems ranging from missed savings opportunities to legal implications.
Business Tax Planning Tips
Missed saving opportunities, penalties, and legal ramifications decrease cash flow, which reduces your ability to invest in other areas of your business. As money is the tool that keeps your organization afloat, creating a strategy is essential. Continue reading for advice on how to develop an effective business tax plan.
Separate Personal From Business Finances
Whether you operate as a sole proprietor, LLC, Corporation, or other business entity, separating personal and business finances is essential. For starters, it increases the accuracy of your tax filings. Secondly, separating financial accounts prevents the IRS from including personal income in your business tax obligations.
Separate financial accounts increase your chances of acquiring business loans as banks do not need to consider personal finances. Lastly, having a business entity and different financial accounts protects personal finances in a lawsuit. If you haven’t done so, select a business entity and open an independent checking and savings account.
Choose The Appropriate Accounting System
Acquiring maximum savings and upholding your business tax obligations starts with accurate and detailed financial reporting. While recording ledgers and excel spreadsheets can be an effective practice for some businesses, it’s not ideal. These bookkeeping methods are complicated, time-consuming, and have a high potential for error.
Fortunately, there are accounting platforms that simplify the process. Such systems allocate data from your financial statements, payroll, vendor accounts, and point-of-sale applications to generate reports. These reports are then translated into detailed, easy-to-understand facts necessary to file taxes.
Use Business Tax Software
Tax software is a system used to file taxes instead of hiring a professional preparer. It takes the guesswork out of the tax filing process, including laws, requirements, deductions, expenses, and credits. Tax software ensures your organization remains compliant while receiving optimal savings.
While there are many systems to consider, cloud based tax software hosting applications are strongly recommended. They provide the same features and securities as traditional tax software but increase convenience by enabling you to access the platform anytime. They allow you to integrate accounting platforms and add-ons to streamline your filings while keeping your data secure.
Consult A Certified Public Accountant
While having quality accounting and tax software can simplify the tax planning process, it shouldn’t replace the advice of a certified public accountant (CPA). CPAs are financial experts with years of education, training, and experience assisting businesses with tax filing and planning. They can answer questions and provide advice to help you make informed decisions to strengthen and grow your business.
CPAs are also well-versed in tax laws, business credits, deductions, and savings opportunities. They will ensure you comply with the most recent tax laws (which change frequently) while saving as much money as possible. Their advice and guidance will help reduce obstacles and increase opportunities throughout the tax filing process.
Tax responsibilities, obligations, and processes for businesses vary by state and country. However, one thing that remains constant is that companies must file them accurately. Failure to comply or inefficient reportings leads to wasted money and substantial legal ramifications. As positive cash flow is essential to business operations and success, it’s critical to incorporate taxes into your financial plans. Use the above advice to create a strategy that works most effectively for your business.