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 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 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 pay too much in 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 business 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.
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1. Invest in a Cloud-Based Accounting Software to Simplify Expenses, Payroll, and Taxes
Cloud-based accounting and finance software contains a lot of great tools and features that you can use to simplify things for your small business at tax time. Many 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
Most accounting software options on the market right now offer free or scalable options for doing your taxes to help your company conquer each tax season as your SMB grows.
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.
Retirement savings can be money in your pocket that you would otherwise be paying as taxes unnecessarily. You can keep up with your monthly contributions by using accounting and finance software to automate your retirement savings plan payments.
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. And we all know how it is not easy to be up to date on all the tax rules each year when things seem to be changing all the time!
Understanding all the deductions that are available for your small business will help ensure that you maximize all the investments you’ve made in 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. Be aware of the local jurisdictional taxes as well as state taxes that apply to your company and stay on top of it all with the right tools.
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 with 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.
Most accounting and finance software that is currently on the market can take care of these deductions seamlessly for you and your SMB. There are also many sophisticated tax automation software on the market that is up to date on current jurisdictional taxes that can help you avoid so many mishaps when filing your taxes. Don’t assume that this software is too expensive for your SMB, most leading accounting and tax software offer cloud-based software options that can be scaled up as your business grows.
Tax season can be a breeze if you stay ahead of the new tax rules that come up in your jurisdiction and file accordingly and on time. Being prepared at all times can be a chore and that is why using accounting and finance software can help you stay up to date on your taxes and ensure that your SMB gets the best tax deductions possibly every year. Visit our Accounting and Finance Software page for a complete list of all the solutions we have on offer and compare the top financial software on the market today.