8 Best Practices for Small Business Taxes

August 10, 2021
Published by Gonzales Group CPA

Tax season is never fun but it can be less stressful if your small business is working with a San Antonio CPA throughout the year to implement the right processes, track the right data, keep up with filings and make smart financial decisions to minimize your annual tax burden and maximize your returns. Many small businesses often realize this too late panicking at the last minute to find the right information requested of them by the IRS.  Engaging a San Antonio CPA  in advance of the next tax season will help immeasurably; good accounting practices are vital for the survival and growth of your small businesses.  They’ll work with you to set up some basic best practices for small business that will serve you well for the whole year, not just tax season.

8 Best Practices for Small Business Taxes:

1.     Choose the right accountant

An accountant should not be hired solely for tax preparation purposes. They can add so much more value to your small business’ operations and, by extension, its bottom line so choose a CPA willing to do more than just prepare your annual financial statements. Pick one who checks in throughout the year and tracks your income and spending so there are no ugly surprises come March/April.

(RECOMMENDED READING: If you need help choosing a CPA,  refer to our post: How to Choose a CPA for your Small Business.)

2. Establish proper record-keeping

Keep careful and accurate records throughout the year to ensure your tax filing and return are correct. A CPA can work with you to ensure all possible deductions are made and all income and expenses are precisely recorded. This will help you avoid an audit.

3. Claim all income that is reported to the IRS

This is very important. A professional CPA helps small businesses track all the 1099-MISC forms received. They MUST match the income you report to the IRS as the IRS has copies of all the 1099-MISC forms issued. If these are not the same, you will be flagged.  The same rules apply to state-level taxes as well.

4. Keep business and personal expenses strictly separate

Do NOT muddy the expense waters as the IRS does not take kindly to finding personal expenses mixed with business ones. It would allow them to investigate your personal accounts if such an indiscretion is discovered. The first step in ensuring this doesn’t happen is to have a separate bank account and credit card solely for business transactions.

5. Thoroughly understand net and gross incomes

Though it sounds obvious, many small businesses do not think this through neglecting to consider production costs, expenses etc. when they look at their income. For example, if you produce a widget for $100 and sell it for $150, gross income is $50 but once you consider production costs and expenses, your net income may be reduced to $5. A very clear understanding and record of all these items is necessary if you want to grow your business and boost profits.

6.     Classify your business properly

You can avoid paying unnecessary taxes simply by classifying your small business correctly. Depending on whether your company is classified as a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor, the taxes you pay will vary.  This determination is very important and you should consult a CPA to help you decide on the appropriate classification for your business.

7.     Consider a payroll service

Unless you have an experienced payroll professional on staff (often an HR manager or accountant), consider hiring a reputable company to perform the payroll function. This will ensure all necessary payroll taxes are remitted correctly which is important give the IRS typically checks quarterly to see if payroll taxes have been paid.

8. Ask for your accountant’s financial advice

If you hire a trusted CPA, they can offer sound, professional advice on all kinds of important financial matters  – how to grow your small business, take advantage of capitalization rules on the purchase of property or equipment, how much to contribute to your retirement fund, whether you should take or defer a bonus, buy or lease a property etc.  Ultimately, investing in their services ensures best practices like these are implemented so your small business is tax compliant, profits are maximized, growth is managed and, most importantly, peace of mind is granted.

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When choosing a San Antonio CPA for your small business needs, make sure you select one that fully understands your organizational goals, company culture and best industry practices for optimal results and an enduring relationship.

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The Gonzales Group is accepting new clients! Contact us for more information on small business taxes and to schedule a complimentary consultation.

Categorised in: 8 Best Practices for Small Business Taxes, Business Tips, Finance Info, Gonzales Group Info, How to Organize Your Small Business Taxes, Tax Info, Tax Report

This post was written by Gonzales Group CPA