3 Ways to Maximize Deductions and Make Tax Season Less Stressful for Your SMB
Tax season is here, which can usher in a wave of stress for small business owners. Disorganization and unpreparedness are some of the key reasons that reasons that tax season becomes so stressful and chaotic for small companies. Much of this may not be intentional, but is more a result of the learning curve of running an SMB and understanding what you need information you need to track all year round so that tax time is more streamlined and organized.
Approximately 93% of small companies overpay their taxes, year after year.
Furthermore, a very large percentage of small companies overpay their taxes by not taking advantage of small business tax deductions that can help SMBs reduce taxable income and maximize deductions.
But tax season doesn’t have to be such a dreaded time for your small company if you’re prepared and have some key tools in place to help navigate the intricacies of completing and filing your small business taxes.
Here are some tips to help you get organized, maximize deductions, and take the stress out of tax season for your SMB.
1. Invest in a Cloud-Based Accounting Software to Simplify Expenses, Payroll, and Taxes
Cloud-based accounting software contains a lot of great tools and features that you can use to simplify things for your small business at tax time. Many of accounting solutions on the market have free or low-cost versions that are perfect to help small companies (with budget constraints) successfully track income and expenses, manage payroll or invoices, and navigate taxes, deductions, and filing each year.
Features of accounting software include but are not limited to:
- Invoicing and billing
- Payroll management
- Tax calculation and filing
- Stock and inventory management
- Sales and purchase orders
- General ledger
- Financial reporting
- And more…
2. Implement a Retirement Savings Plan
Creating a retirement savings plan as a small business owner may not seem like a high priority as you’re growing your company, but setting up a 401K or Roth IRA plan as a small business owner can help lower your taxable income, provide tax benefits, and help you establish future savings at the same time.
3. Be Savvy About Maximizing SMB Tax Deductions and Benefits
A large percentage of small companies end up overpaying on taxes simply because they don’t yet know about the deductions they can take advantage of as a small business.
Understanding all the deductions that are available for your small business will help ensure that you maximize all the investments you’ve made into your business throughout the year. The deductions and tax benefits available to small companies can vary from year to year, so doing some research into maximizing your deductions can help your company save time and ensure you obtain maximum tax benefits to lower your taxable income.
SMBs often miss (or don’t fully take advantage) of deductions such as:
- Home Office: As a small business owner, you might spend a lot of time working in an office set up in your home. If you operate from a dedicated home office space for most of the year, then there are some deductions you can take advantage of to lower your taxable income and account for all the expenses associated to working from a home office. Deductions are based on the square footage of your home office and its frequency of use, and can include insurance, utilities, internet service, mortgage interest, etc.
- Car: If you use your vehicle for work purposes, then you can take advantage of some small business tax deductions related to how you use your car for your business. Deductions can be done through mileage accrued in traveling for business in your car or can also be done according to expenses and maintenance on your car as a result of using it for business. You should consider both options and determine which variation offers you the most benefits when you file.
- Business Equipment: Equipment you purchase as an investment in your company also may qualify for deductions. There are deductions for business machines and devices like computers and phones, software, and more. Keeping a careful inventory of your business equipment, along with purchase receipts, can help you make sure you maximize deductions.
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