The Smart Way to Handle Business Taxes Without the Headaches

When you approach business taxes the right way, they don't have to be the struggle many business owners find them to be. Often, it's the mindset of putting things off until the last minute or considering them a separate entity altogether that puts owners into a stressful mode of operation once January hits. Getting systems into place early on and securing proper assistance makes taxes a part of running your business that you're prepared to handle—as opposed to a frantic scramble twice a year.

Many owners assume taxes are stressful when, in reality, they're only stressful if you're unprepared for them. If you wait until April 11th to attempt to sort through your receipts, categorize expenses, and establish what you owe, of course you're going to feel the stress creep in. There's a better way.

Systems That Make it Easy

Ultimately, the best way to manage taxes is to manage other aspects of your business in conjunction with them all year long. This is not to say you need a high-priced program from the start or an unbelievably complicated system; you need an at-hand approach that keeps everything organized and manageable.

Keep personal and business expenses separate from day one. Use a business checking account and credit card—this cuts out approximately 70% of confusion that creates headaches during tax season. If you're trying to reconcile six months after the fact, if the $47 charge was for office supplies or groceries, good luck. If you have receipts clearly marked in a separate folder, it's clear how to move forward.

Keep everything digital and categorized. Most accounting software will do this for you. If you're not using accounting software yet, that's fine; a systematic approach to digital folders organized by area will do, as long as you're consistent about it. Record all of these items as they come, don't wait until six months after to remember what came in and where it went out.

Expecting What You Owe

Where many businesses get tripped up are their expectations as to what they owe. It's not one payment a year; depending on your state and how you file, there are quarterly estimated payments, payroll taxes and sales tax that will bite you in the end if you neglect them.

Each entity files differently—sole proprietors from LLCs, from S-corps—and based on your situation, you may owe less or more than expected; either way, if you're not educated on the process and what you can expect in the beginning, you're in for an expensive awakening later down the line.

A tax accountant can assist you with knowing what your obligations are going forward. They make it clear when you have to pay what and for how much, so you at least have an idea by April every year if you have to set aside $8,000, not scramble last minute trying to find $8,000.

Using Deductions to Your Advantage

Where most businesses fail is in using deductions properly—or failing to use deductions because they don't understand what's owed to them. The tax code includes myriad legal deductions that the IRS approves for legitimate business purposes ranging from home office expense write-offs to vehicle purchases for professional acquisition.

What most owners fail to realize is how much they might have coming back to them—or what's at risk for error through incorrect filings—and it's easier than you think to substantiate various deductions. Business meals, travel costs, any expenses tied directly into your day-to-day operations qualify for decreased taxable income—but getting caught up with deduction amounts you're not entitled to (even unintentionally) can flag audit risk.

It's important you know what qualifies and keep the records necessary—for home office deductions that means tracking your square footage; for mileage, tracking your work-related driving and keeping receipts with business purpose noted is imperative. This makes claiming deductions less stressful because when you know what you can claim based on sound filing principles, you no longer have to hope but trust.

Proactive Thinking

The businesses that get taxes right think of them in advance as opposed to two separate times of the year. They think about how their decisions impact their taxes instead of after making potentially regrettable ones.

For instance, if you're thinking about buying new equipment, consider when you'll want to deduct it as this affects which tax year it falls into. If you're thinking about taking a large distribution or payout from your company this year—for whatever reason—do you know the tax implications? It might benefit you more next year depending on your overall income this year versus last. Are you anticipating hiring employees? Note that payroll taxes must factor in now.

Taking the time for strategic thinking prevents expensive revelations down the road and allows owners to structure things accordingly to benefit their business financially. If you're only thinking about this come filing time every year, chances are you've missed all these considerations already.

Getting Help Early On

Many business owners attempt to go it alone in the early days—with good intentions—because they want to save money wherever they can. That's appropriate for certain things; however, with taxes, it's better to get professional help early on so that mistakes (however costly—penalties versus dedications versus time wasted) do not amount later on and cost more money than it ever would have taken good help in the first place.

Getting professional help doesn't mean washing your hands clean of the process; instead, it means learning through a licensed professional who knows the tax code and acknowledges your unique situation so as to put you in the best position possible going forward (and throughout). The right approach pays for itself by saving time otherwise spent stressing out over money that could've been put toward the business instead of inappropriately sent to the IRS.

Making It Sustainable

Ultimately, when taxes become less important because of a solid system in place and incredible support, stress dissipates. When mistakes happen if people have it under control, then taxes become an unsustainable measure instead of a natural part of life for all aspects of running a business.