How Your Business Can Simplify Tax FilingEvery business owner must settle their taxes on time.
While the exact amount may vary depending on the nature and location, taxes are one of the most significant expenses a business must pay.
A typical small business must usually spend an average of 20%–30% of its income.
Aside from being one of the highest costs of running a business, taxes are one of the most crucial bills.
And it may continue to increase, thanks to constantly rising inflation rates.
In addition, businesses that cannot file their taxes at the right time may face legal consequences, such as fines, penalties, and, even worse, criminal prosecution.
But the good news is that filing and managing your taxes doesn't have to be a source of stress and headache.
Thus, in this article, you'll learn the following tips and tricks to ensure a stress-free tax season.
Before that, remember that this guide is for informational purposes only and is not intended to replace the services provided by a professional accountant. These may include tax services, financial advice, and accounting operations.
Use Online Invoicing SolutionsOnline invoicing is one of the best ways to help you stay on top of your tax filing processes.
This solution will help you track your outstanding customer invoices and get paid as soon as possible. But how does this work?
The process starts by generating an invoice with necessary details, such as a list of items, prices, total amount, due date, and business name. Once done, the software will immediately notify the client through email.
They'll be able to view the invoice you sent as soon as they receive it and pay instantly through online payment methods.
In addition, with online invoicing, you'll be able to determine if the customer has seen your invoice or not.
You may even use the solution to send automated reminders, primarily when the due date draws nearer.
So, contact your local online invoicing provider and start streamlining your invoicing operations for faster payment turnover.
The earlier you get your money back, the better you'll be able to pay your taxes.
Understand The Financial JargonHighly specialized accounting terms are one of the things that makes filing taxes more difficult and stressful.
However, you must take all the time you need to learn the essential jargon to understand the financial position of your business.
Here are some technical words and phrases you'll most likely see on your documents:
Revenue: The amount your business earned from its sales.
Cost Of Goods Sold: This is the amount you need to produce the products and services you offer.
Gross Profit: Most businesses can determine this figure by subtracting the cost of goods sold from the revenue.
Net Sales: This is the actual amount your business earned.
You can calculate this by deducting your expenses from your total revenue.
Understanding financial jargon will help you prevent errors due to miscalculations because of the improper use of technical terms.
For example, you may compute net sales with the formula used to determine gross profits.
Separate Business And Personal AccountsFirst things first: keep your personal and business accounts separated.
This is one of the most effective and simplest ways to make your tax filing easier.
In addition, this will help you have clean and accurate financial records for all the expenses you've had while keeping your transactions private.
Keeping both accounts separate can help you avoid tax problems due to improperly managed, inconsistent, and inaccurate financial statements and records.
Keep Accurate RecordsFiling taxes will be much easier if you have clean and accurate financial records.
For example, you'll need to compile your bank statements and reconcile your incoming and outgoing finances with invoices and receipts.
Or you may use an accounting software solution to make the process easier (more on this later).
Also, when establishing records, make sure to include your free samples.
Most businesses often ignore and mark them as inventory shrinkage when, in fact, they're a part of marketing expenses.
Aside from free samples, credit card points are another thing often left ignored and unrecorded.
Instead, you must record these points as a part of income or profit to your business.
Use Accounting SoftwareAre you still using old-fashioned spreadsheets to keep track of your incoming receivables and outgoing expenses?
They might be easy to work with, especially for small businesses, but the risk of having mistakes is too high.
In addition, such manual tasks promote human errors, which may cause tons of inaccuracies in your data—something you wouldn't want to encounter.
Spreadsheets won't be able to provide you with accurate results.
Also, it won't produce the financial statements you need, let alone provide necessary information about the biggest vendors and their most significant purchases this year.
This is where accounting software makes its grand entrance.
Integrating this software into your current platforms and tools will help you save time, reduce errors, and automatically produce reports.
That way, you can better understand the financial status of your business.
Set Aside Cash For Employment TaxesIf you have employees working for you, it's your responsibility and legal obligation to settle their employment taxes.
Failure to do so may result in hefty fines and penalties or even closure of your business—another situation you seriously wouldn't want to happen.
Payroll taxes you need to pay include the following:
Social Security: The amount of Social Security taxes is based on 6.2% of your employee's earnings.
For example, if an employee earns USD$2500 per month, the amount you need to settle would be USD$155.
Medicare: The amount of Medicare taxes is based on 1.49% of your employee's earnings.
For example, if an employee earns USD$2500 per month, the amount you need to settle would be USD$37.25.
Federal Income Tax: This would depend on how much your employees earn.
As such, you must consider using accounting software to stay on top of your payroll.
These tools will help you manage and track your employee salary and working hours effectively and remain compliant with employment laws accordingly.
Final WordsTaxes are one of the biggest yet essential expenses businesses must promptly address.
Otherwise, they can face legal fines and sanctions.
However, filing taxes doesn't have to be challenging.
With the tips presented above, you'll be able to settle your taxes without breaking any sweat.
But remember, these tips shouldn't replace the professional services certified and licensed accountants can offer.
So if you need help meeting your tax obligations, don't hesitate to consult them for expert advice and opinions.
Note: The information in this site is for general guidance only. Users of this site are advised to take professional advice before taking practical tax decisions.
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