There are a lot of exciting things about starting your own business. Seeing your product develop from a basic idea into a real life product that people are buying is a great feeling. But there are always going to be downsides. One of the worst things about starting your own business is having to deal with all of the taxes. Nobody likes paying their taxes and when you start a company of your own, things are a lot more complicated than they are when you’re doing your own personal taxes. That’s why a lot of new business owners make mistakes with their taxes in the first year of trading. But if you make mistakes, you could end up with a hefty fine that will cause you no end of problems when you’re trying to keep a new business afloat.
A lot of inexperienced people also end up paying way more than they need to be. If you’re making mistakes on your business taxes or you’re missing out on tricks and loopholes to reduce your bill, you can easily end up with a massive bill when you could be paying a lot less. Cutting costs is always a priority for any new company so if you can reduce your tax bill, you’ll make life a lot easier for yourself. Here’s how to do it.
Pay On Time
You already know this, but it’s worth reiterating. If you pay late then you might get a fine, which is essentially money down the drain for no good reason. This usually happens because people underestimate how long it will take to fill out all of the paperwork and they think it’ll just be like doing their own personal returns. In reality, there’s a lot more work to be done so make sure that you start preparing your tax return early and make sure that you’re done before the deadline.
Keep Good Records
This is absolutely essential when it comes to business taxes. You might have a plastic bag filled with receipts that you call a filing system when you’re doing your personal returns. While it’s a bit of a pain, you can go through all of that stuff and find the information you need. But if you try to do that with your business taxes, you’ll end up in trouble. You need to supply a lot more information and you can’t leave any gaps, that’s why keeping good records is one of the most important things. Luckily, there are some great pieces of software out there that you can use to help you. Check out these professional tax software reviews to find the best ones on the market right now. You need a system for recording your income and expenses and you’ll need somewhere to store digital copies of all of your receipts. Even the smallest gap in your records can cause you no end of hassle so make sure you’re using good accounting software right from the outset and taking note of everything. Make sure you back everything up as well, if you’ve got it all on one computer and you lose it, you’ll be in big trouble.
Know The Law
Tax laws change from time to time and it’s up to you to keep on top of those changes. If you make a mistake because you weren’t aware that laws had been updated, you’re not going to get any sympathy and you’ll probably end up with a fine. Always make sure that you’re fully aware of what taxes you need to pay and when you need to pay them. Law changes sometimes offer tax benefits for businesses as well and if you’re not aware of those new laws, you won’t be able to take advantage of those tax breaks and you’ll end up paying more than you actually need to.
Retirement plans are one of the most popular ways to save money on business taxes and they’re a good way to attract good employees and keep them. When you put contributions into a retirement plan, you don’t have to pay tax on that money. When the money is eventually taken out, you’ll have to pay tax on it then but that won’t be for years to come. Right now, while the business is new and doesn’t have a huge amount of cash, removing that tax burden can really help you out.
Deferring income isn’t a way of avoiding that tax completely, but you can put off having to pay it for a year. This is especially helpful if you’re going to get a massive tax bill that you might struggle to pay. By putting it off until the following year when you’ll, hopefully, be making more profit, you can keep the business afloat and free up more cash. It’s simple really, if you’ve got some invoices owed to you near the end of the year, push back the due date a few months so they fall in the next year. Then, you won’t have to declare that income until the following tax year.
Employee Benefits Instead of Salary Increase
Rewarding your employees properly is essential if you’re going to attract the best people for the job and make sure that they stay with your company instead of going to work for your competitors. But if you start giving everybody a salary increase, that’s going to increase your tax bill. The employee themselves will have to pay all of your tax contributions (medicare, FICA, income tax etc.) and you would also have to pay your share of some of those contributions. However, you can reduce the burden on yourself as well as your employees by giving them more benefits rather than increasing their salary. If you contribute to their health insurance policy, for example, you won’t have to pay tax on that money. Just increase their policy by the same amount that you would have given them for a raise. They’ll still benefit from extra pay, but neither of you will have to increase your tax burden.
If you use these simple tricks and make sure that you’re always being thorough with your tax returns, you can reduce your bill by a lot.