6 Tax Preparation Tips Every Entrepreneur Should Know
As a Manhattan entrepreneur, you are most likely aware of the importance of taxes in running a successful business. That said, if you’re starting a business for the first time, it’s natural to be confused about what you need to do and, more importantly, how you need to do it. Even if you are unfamiliar with the intricacies of taxes, there are some things you can do to prepare for when it comes time to file your annual return. To help you through this, today we are going to talk about the 6 tax preparation tips every entrepreneur should know.
1. Work With Freelancers
When you start out, you may wonder whether it is better to hire a dedicated staff or outsource your work to freelancers. The answer to this question is not simple. A dedicated workforce will be more expensive in the long run, but they will always be present. On the other hand, freelancers are much more flexible but come at a high upfront cost. Nonetheless, a combination of the two is likely to be the best option. You could have a salaried staff and contract with freelancers for larger, more specific jobs or routine tasks. However, there are a few things to keep in mind when it comes to paying taxes.
On the one hand, if you employ people, you must pay their payroll taxes. This includes benefits like Social Security and Medicare. However, since freelancers are self-employed, you don’t need to pay taxes. That said, ensure that your contractors are not misclassified as employees. There could be legal ramifications and penalties if you misclassify your employees. For this reason, it is essential to have a plan in place when starting your small business In Manhattan. This way, you won’t have any issues later down the line.
2. Establish a Business Account
The following tax preparation tip we will mention is establishing a business account. When starting a new business, most entrepreneurs use their personal bank accounts as business accounts. Most of the time, this is because new business owners do not want to deal with the hassle of opening a new bank account for a venture that may or may not succeed. Having said that, if you want your business to succeed, you must have a dedicated business bank account. We suggest that if you are starting a new business, you should create a business account no matter what type of business you are starting.
First, open a business checking and savings account and use only the business account for purchases and deposits. This will make avoiding personal liability for business tax obligations much easier. However, if you choose to use a business account, you should refrain from making personal payments with the funds in it. Mixing personal and business spending can make it much more challenging to pay your taxes, and it defeats the purpose of opening two separate accounts.
3. Have a Plan in Place and Stay On Top of Your Paperwork
To achieve maximum financial success, you must be organized and plan ahead. This is also true when it comes to paying taxes. Creating a plan or system for paying your taxes may seem obvious. However, many entrepreneurs fail to do any kind of preparation. This makes everything much more difficult for them. There is a lot of paperwork when it comes to paying taxes; therefore, being organized and having a plan in place will make the entire process go much more smoothly and quickly. If you do not work proactively in an efficient structure, you will fall behind. A plan guarantees that nothing is overlooked and that everything is in its right place. With a plan in place, you will be able to work in manageable chunks through the year instead of scrounging to finish everything at the very last minute.
4. Do Not Ignore Legitimate Tax Deductions
Take full advantage of any and all tax deductions to which your company or startup is entitled. Do your research on what’s out there because some aren’t easily accessible through filing and may require an application instead. This doesn’t just mean personal deductions, but things like charitable contributions or business losses that impact your bottom line positively. Always look for ways to maximize these tax breaks and minimize your tax bill. This tax preparation tip can help you make you maximize your profit.
5. Make use of Depreciation
You can write off the depreciating value of any tangible or intangible assets you use for work as a business expense. Everything that falls into the category of depreciable objects can be written off when the time comes for you to pay taxes. Any equipment that you use, office supplies, and even your business vehicle fall into this category. It is also possible to depreciate intangible assets like patents, software, and copyrights. All workplace damage, including that to the aforementioned items and anything else that belongs solely to your business, is also something you can deduct.
6. Don’t Do It Alone
Taxes can be extremely intimidating, especially if you have to do them alone. As a result, we always advise business owners to work with professionals. Most entrepreneurs do not work with professionals because they believe they will save money this way. This, however, is not always the case. In fact, working with a tax professional may result in you saving money. They will be able to detect deductions and other subtleties that could work in your favor. Accountants, Certified Public Accountants, and Certified Financial Planners are all qualified professionals who can assist you.
Now that we’ve covered the 6 tax preparation tips, every entrepreneur should know you will be able to prepare correctly and avoid costly fees down the road. Keeping accurate records is essential regarding your finances – especially your business. Take the time to stay on top of things, and you’ll save yourself time and money in the long run.
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