It is officially tax season, which means business owners have until April 15th to get their documents in order for filing, round up expenses and revenue for the year 2023, consider their deductions, and so on. With that, the past few years have brought legislative changes that can impact your tax burden, and inflation and high interest rates can make a significant impact as well.
Your 2023 tax return may look much different than the prior year, especially if your income has increased, you’ve changed your business structure, you’ve made different investments, etc. Here are a few useful tips for business owners to streamline tax planning in 2024.
1. Consider Using a Tax Preparer/Accountant
While tax preparation can certainly be done without a professional, small business taxes can be complicated and it can be easy to make errors or miss out on potential tax savings. Tax preparers help you ensure you have all the proper documentation, you are abiding by the most recent tax laws, and your business is getting maximum value out of your tax return. There are already plenty of ways small businesses can lose money, but taxes shouldn’t be one of them.
If you choose not to use a professional, that’s okay, but make sure you are doing thorough research and consulting the federal and state tax laws that are required of you.
2. Understand Your Business Structure
Different types of business entities — such as a sole proprietorship, LLC, S Corporation, or C Corporation — have varying tax implications. For example, sole proprietors and LLCs must pay self-employment tax and personal tax. S corps must pay personal tax, and C corps must pay a corporate tax. Each type of tax has different filing requirements, so it’s important to understand what Forms the IRS will require you to submit as well as how it will impact your income and investments.
3. Know What Deductions You Can Take
The types of deductions you can take on your taxes rely on, again, your business structure, as well as how your business operates. For instance, self-employed business owners (sole proprietors and LLCs) can deduct anything they use specifically for business purposes. This includes things such as vehicle use, phone bills, internet use, home office space, supplies, etc. However, you can only write off a percentage of usage if you also use these things for personal use. In your statements, you must identify this and only that portion of the expense will be deducted.
Small businesses that have employees can use that to their advantage, as well. There are several types of employee-related tax credits, such as the work opportunity tax credit, employee retention credit, employer-provided childcare credit, etc. As opposed to deductions, tax credits serve as a “refund” for meeting certain requirements as a business. You can find a full list of credits and deductions for businesses listed by the IRS.
4. Stay Up to Date with Bookkeeping
Managing your books is a critical part of running a business and should be addressed multiple times throughout the year. If your books are accurate and up to date, it will make filing your taxes much easier and will offer more rewards at tax time. Bookkeeping allows you to track your income and expenses throughout the year and shows your net profit, which is needed in order to file your taxes.
Do you have outstanding questions about what taxes will look like for your business in 2024? Get in touch with us at Republic Bank by calling 800-526-9127 and visit our library of resources for other helpful financial tips.