Running your own small business may be a dream come true, but it is also a challenge. Though you may want to concentrate on sales or service, you also have to set aside time for the complicated task of paying taxes. There is a lot more to the process then meets the eye, especially because liability is not limited to the federal government, or even to income tax. You also must pay state and local taxes and figure out what you owe for sales tax, excise tax, and (if you have employees) for employment taxes.
There is plenty of information available on the web telling you what you need to do to address this responsibility, but if you follow the three steps outlined below, you’ll find that everything else falls into place.
When it comes to paying taxes and making sure that your small business is following all the right procedures, hiring a small business accountant is the single greatest gift you can give to yourself. They will keep you on schedule and in the know when it comes to determining how much you owe for quarterly estimated taxes, how to determine asset depreciation, what deductions you are eligible to take, and more. Even if you are a sole proprietor, your accountant should be thought of as a valued member of your team.
If you don’t know where to find the right tax expert, we suggest you check out CountingWorks.com, where you can plug in your criteria and be matched with knowledgeable professionals. Alternatively, check in with other small business owners and see who they recommend.
Tax liability is determined by the type of business structure you have chosen, where you are located, what your assets are, and how many employees you have. Each of those individual elements determines the specifics of what type of federal income tax you file, what your community or state requires in terms of licensing of business taxes, how and whether you can depreciate equipment or property, and whether you need to submit taxes related to having employees or to file self-employment tax.
Referring back to item #1 on this list, an accountant will be able to quickly and easily explain each of these aspects of liability to you, making sure that you know exactly what your tax obligations are.
Taxes are one area of your business that you don’t want to make mistakes with, so be sure to give yourself plenty of time, be aware of the various deadlines you need to adhere to, and plan ahead for emergencies. If you need to pay quarterly estimated taxes, the due dates should be marked on your calendar. Keep your records up-to-date, accurate, and close at hand to make filing tax returns a breeze or in case you need to answer any questions quickly.
Perhaps the most important future-thinking step you can take is to set up both a tax payment fund so that when quarterly taxes are due you have the funds available, and another, separate fund for rainy day savings to help address your needs in the face of unexpected expenses, sudden downturns, or emergencies.
Knowing what your tax obligations are and following these three important steps will put you ahead of the game and keep you from being caught unawares when tax time rolls around. If you want more information or tips for preparing for tax season, contact your business accountant or check out this Small Business Administration (SBA) guide.
About Sonu Shukla, CPA, CFP
Sonu Shukla is a Certified Public Accountant as well as Certified Financial Planner. He believes in proactive tax planning and has the skills, education and experience to demonstrate passionately planned financial strategies. His firm tailors highly efficient tax plans for his small business clients, all in a one on one environment where he and the client can bounce ideas around until every detail is worked out. Located in Orlando, FL, he services all of Florida.
