Most business owners find tax filing complex. This is because the tax filing process has to be combined with running the business. It is advisable for business owners to work with an accountant throughout their business year. There are a couple of tax tips for small business owners that can also help you get your tax affairs in order.
As a business owner, you should not make any financial decisions without consulting your lawyer. More importantly, you should not make tax-related decisions without consulting your accountant.
Smart Tax Tips for Small Business Owners
For many small business owners, tax time is a stressful time of year. You’re trying to make enough money to cover your business expenses and pay employees, but you also have to deal with complicated rules and deadlines. But don’t worry! Even if you don’t have a full-time accountant or CPA on staff, there are ways that you can get ahead at tax time by following some simple steps.
Know your filing deadline.
One of the most important tax tips for small business owners is to know when your filing deadline is.
- Know your filing deadline.
- Don’t wait until the last minute to file your tax return.
- Don’t wait for an extension just because you don’t want to pay taxes. You can always file an extension, but it’s not worth it if you’re going to end up paying more in interest and penalties later on down the line (and there’s no guarantee that you’ll get another year).
- How do I file an extension? If necessary, contact a professional tax advisor who specializes in small business owners—they can help guide you through the process!
Take advantage of tax credits
Second on tax tips for small business owners: You should take advantage of tax credits.
Tax credits are naira-for-naira reductions in the amount of tax you owe. They can reduce your tax bill to zero and make it easier for small businesses to comply with complex taxation laws.
For example, if your small business has an annual turnover of N50 million, then it can claim a tax credit worth 25% of its total profits (N25 million). This would mean that instead of paying 50% income tax on any profits over N10 million, they would only have to pay 25%.
Claim your deductions.
Third on tax tips for small business owners: Be sure to claim your tax deductions!
A deduction is a form of tax relief that reduces your taxable income. You can claim deductions for expenses you have paid, as well as those which are not reimbursed by your employer or business.
There are three types of deductible expenses:
- Personal: These include things like education and travel costs.
- Business: These include items such as rent/mortgage payments, office equipment and software licenses etc., staff wages and salaries etc.
- Advertising costs incurred in carrying on a trade or business (e-commerce).
Separate business from personal expenses
Fourth on the list of tax tips for small business owners: You need to separate your business expenses from your personal ones.
You need a separate checking account for your business. This can be any kind of bank, but if you’re self-employed and have to pay taxes on the money that comes in every month, it’s important that all transactions go through this account.
- A separate credit card: If you use a personal credit card for business expenses, make sure that the company is listed as an authorized user on the account so that payments will be deducted from your paycheck instead of being charged directly from the business itself (which can lead to errors).
- A file folder or other way of keeping track of receipts: Keep everything related specifically to small businesses in one place—not just receipts but also invoices, statements from suppliers and vendors involved with specific projects/orders etc.
Hire an accountant if necessary.
Fifth on the list of tax tips for small business owners: Hire a professional accountant to handle your tax records.
Hiring an accountant is a great way to ensure that you’re filing your taxes correctly and efficiently. If you don’t already have one, consider hiring one at the beginning of each year to help with any complicated tax questions (and perhaps even provide ongoing financial advice).
An accountant can also be helpful when it comes time for employee payroll, which may require some advanced knowledge of payroll laws in addition to accounting skills. An accountant will know exactly what information needs to be reported and when those reports need to be filed—and they’ll do it all legally!
Use tax software to make filing easy.
Sixth on the list of tax tips for small business owners: Use tax software to make filing easy and automatic.
Whether you’re a small business owner or not, tax software can be a lifesaver. It’s easy to use and will help you file your tax records quickly and accurately. The most important thing about using it is that it will also allow you to find deductions that you may have missed in the past when filing taxes manually.
In this article, we’ll go over some of the best ways to use tax software as an entrepreneur:
File your return on time
Seventh on the list of tax tips for small business owners: File your return on time!
You can do this by filling out the appropriate form and sending it to the Federal Internal Revenue Service (FIRS). If you don’t file for an automatic extension or if there is an issue with filing, contact the FIRS immediately.
If you have trouble filing for an extension, contact a tax professional who can help guide you through the process.
Classify your business correctly
Eight on the list of tax tips for small business owners: It’s best to classify your business correctly so you don’t incur the wrong tax.
A business can be classified in one of three ways:
- S-corporation – This is the most common classification for businesses. It’s also the one that offers the most benefits, but there are some downsides to consider before deciding on this option.
- C-corporation – This type of corporation has limited liability protection, but it’s not as popular as S-corporations because they don’t have the same tax benefits as S-corps do (see below).
- LLC (limited liability company) – An LLC combines elements from both C and S corporations, including limited liability protection and some tax breaks.
Deduct home office costs from your rent or mortgage.
Ninth on the list of tax tips for small business owners: Make sure to deduct home office costs from your rent or mortgage.
If you use a home office to run your business, you may be able to deduct expenses associated with the space. For example, if you have an office in your home and spend three hours each day there, that would be considered “reasonable” time spent on activities related to running the business.
There are two ways that businesses can claim this deduction:
- The percentage of your property used for business must be at least 50%. This means that if half of one room is dedicated entirely to being an office space (as opposed to having both bedrooms), then only half of it qualifies for deduction purposes.
- You can also claim all items purchased for use as part of running this type of operation as well as any utilities used by employees within those areas where they work most often (including electricity).
Get free help from the FIRS and state tax agencies.
Finally on the list of tax tips for small business owners: You can easily get free help from the FIRS and state tax agencies.
The FIRS and state tax agencies have a lot of resources available to help you with your taxes. For example, if you are having trouble filing your taxes, they can help walk you through the process. You can also get free advice from them by phone or online chat with an agent or tax professional.
- How much income do I need?
- How much profit do I need?
- What deductions should I claim on my tax return?
The FIRS website also provides information about all kinds of topics related to finances and tax tips for small business owners.
So, if you’re thinking about becoming a small business owner, or if you already have one, don’t let taxes scare you away. The good news is that there are plenty of resources out there to help you get your taxes done right! Just remember that having an accountant on hand can make all the difference in the world—and it doesn’t hurt to ask for help from other sources too.