As a small business owner, you can’t afford to get tripped up by taxes. Here are 5 of the most common tax problems:
- Claim your legitimate expenses. Claiming every item you’re entitled to is a must. Even though it may seem small, these little items add up. Whether it’s the lunch on the way to a meeting, or the gas on your way to work, keep track of what you spend money on. Keep your receipts for each of these items and stay organized. Store your receipts in order and you’ll be sure not to miss anything when you add them up.
- Don’t make business personal. It is essential to keep your business costs separate from personal costs. A good way to do this is to use separate bank accounts, because for tax purposes, they are different. In fact, if you trade as a limited company, then you and your business are completely separate entities.
- Claim a percentage of your domestic costs. Claiming a percentage of your domestic costs can be a smart move if you’re using your home for any part of your business. This means that you could potentially claim a portion of gas, electric, internet, etc. It’s important to check with your accountant before doing this though, because it may have further implications on the tax of your home.
- Keep good records. Recording and keeping track of what happens is applicable to many different parts of a small business. For example, one thing to keep records of is who is an employee and who is an independent contractor. Also, keep records of how much someone paid, the date, your business equipment, and anything else related to your business. Keeping accurate records can prevent miscalculations later on that result in major headaches, so keeping track of everything and hiring a knowledgeable tax accountant can save you in the long run.
- Don’t pay yourself too high a salary. Although running your own business can result in monetary benefits, know how to handle your money responsibly. The saying goes “it takes money to make money”, so remember all profits shouldn’t go right into your pocket. First, you must account for taxes, payroll, fixed costs and overheads. Next, you have to think about how much you will need for future endeavors and expansion. If you’re even thinking about reinvesting, it’s best to leave your money with your business to avoid the taxes that will result from taking this money out. You do need money to live on though, so pay yourself regularly and set your own salary.
Know how to handle your taxes responsibly and don’t attempt to do it alone. Tax accountants and tax software can keep you updated on the ever-changing rules and regulations that may affect your small business.
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