Taxes are an annual part of business, so it’s better to prepare for them early. You’d need to keep accurate records and manage a good accounting system. If you track and organize your account regularly and keep all financial documents, your business can get tax breaks.
But some problems could make filing your tax returns a nightmare. To properly prepare for small business tax, you'd need to know about these problems and solve them.
Problem: Recording Personal and Business Expenses
Business expenditure is the cost needed to run your business daily, while a personal expense is the amount you spend on goods and services for yourself and your family.
It should be easy to differentiate between the two, right?Unfortunately, most small businesses start from the living room or garage. In that situation, a product you purchase could be for yourself and your organization. Where would you classify the laptop that you bought for schoolwork and business? What about utilities and rent in the building that doubles as your office and home? How do you discern your business expenses as a sole trader?
Besides, some business expenses are tax-deductible,further complicating matters. If you don't have the right information, you won't know where to record each purchase.
Solution: Prepare Accurate Records
If you have an expenditure that covers personal and business needs, divide the cost between the two and record the amount used for your organization. According to the Internal Revenue Service (IRS), any amountyou pay to carry out your trade or business is tax-deductible, as long as you have a for-profit organization.
The following expenses are not deductible:
● Expenses used to determine the cost of your products.
Financial Transaction Information
Problem: Insufficient And Improper Documentation
Not correctly documenting your financial transactions could hurt your taxes and attract penalties. But when you're juggling several responsibilities to grow your business, you might forget to track your expense,write out that little purchase, or document your receipt.
Solution: Have A System For Documentation
It’s vital to have a financial management system for your business.
Consult An Accountant
A Certified Public Accountant (CPA) will help you create an appropriate accounting system. They can explain tax returns, changes in tax law, and how to maximize your business finances.
Consider consulting a CPA near you to help put your finances in order.
Have A Comprehensive Digital Financial Record
How do you record transactions? Do you write down your expenses and sales daily, weekly, or monthly? Do you keep track of your receipts dates, amount, financial documents, and account numbers?
Consider recording your finances digitally so you can have a comprehensive report. Track the revenue and expenditure to have an accurate calculation of your expected income tax. You’d need to know your transport and office payments. That way, you won’t miss anything.
It’s crucial to use an online transaction processing system. It will digitalize and simplify your accounting process.
Problem: Not Monitoring Tax Contribution
Most businesses wait for tax season before they calculate their contributions. By then, they might not have enough resources to pay what's due.
If you file your taxes and don't pay before the deadline, the IRS can ask you to pay a failure-to-pay penalty. It amounts to 0.5% of your unpaid taxes every month that you neglect to pay up to 25%. If you don’t file, the charges are much worse. Your penalty is 5% of the unpaid tax every month you don’t send in up to 25%. Every country has their own rules and regulations especially their method of imposing fines, so have a look at on your country's Tax Authority site for more details.
Solution: Prepare Your Taxes Early
Prioritize your taxes.
You can do your tax accounting in January and gather the resources needed. You can also track your tax refunds. Ensure your records are accurate, and all the required documents are ready. Also, consider paying your taxes ahead of time. That way,you ful fill that financial obligation.
You would want your business to deliver value and legally make a profit. Paying taxes is a legal obligation. While expense management might be unpleasant, it's vital to calculating your taxes.
You might be mixing up your business and personal expenses or not getting the appropriate tax deduction. Since you own a small business, documentation of every little purchase and revenue may seem cumbersome. It's hard to track and document expenses, file all financial reports, and record revenue while managing sales and employees.
This type of accounting system could lead to insufficient resources and late tax returns. Unfortunately, not filing or paying your taxes on time leads to penalties that eat into your profit.
Having an extensive expense management system is vital to your business, and ZayPay is the simple technology-based solution. The online transaction payment system makes managing expenditure easy. You can make international micropayments with a few clicks. You’ll also get to record your transactions and have digital reports to use when filing for taxes.
Within seconds, you can make a purchase and record the details of the expense. That saves you and your employees time and unexpected costs. Instead of hiring personnel or managing expenditure endlessly, you'll finally be able to focus on growing your business.