Accounting Tips for Small Business Owners
Most everyone agrees taxes are stressful for all, whether you’re filing taxes as an individual, for a small business, or on behalf of a large corporation. In fact, according to some surveys, 80% of small business owners in the U.S. feel at least “some stress” during tax season, and roughly 63% of them rate their stress level at three or more on a scale of five.
Tax season can be rough, especially for small business owners who may not have the time or resources to rely on others to handle operations so they can attend to other important matters. It’s difficult and stressful to juggle everything. However, the important tasks associated with accounting can’t be avoided.
Learning small business accounting tips and tricks can help. Let’s take a look at some ways small business owners can make tax season less stressful.
Small Business Accounting Tips for Success During Tax Season
Depending on the type of business you run, you may file your business taxes in conjunction with your individual (or joint) tax return, or you may file separately. Either way, the following small business accounting tips can help the process be less overwhelming.
Keep personal and business accounts separate
One mistake you’ll want to avoid is commingling your personal and business bank accounts. While it might feel easier to use one account for both, for accounting and tax purposes, it’s best to separate them.
Reasons to do so include:
● Liability protection (unless you operate as a sole proprietor)
● Ability to build your company’s credit standing
● Simplify and streamline accounting
● Improves recordkeeping abilities
● Enjoy bank account features only offered to businesses
● Having more accurate books
If you combine your personal and business accounts, you may run into conflicts or other complexities at some point. On the other hand, if you keep them separate, you can easily determine your company’s financial standing, and there is less room for confusion over which funds or debts belong where or when it comes to filing your annual tax return.
Use bookkeeping software
Years ago, small (and even large) businesses relied on old-school accounting ledgers to manage day-to-day transactions regarding business assets, debts, revenue, and other relevant figures.
Today, bookkeeping software easily removes much of the tediousness associated with doing accounting in the days of yesteryear. By embracing a good bookkeeping system, you can simplify your accounting for:
● Managing taxes
● Tracking cash flow
● Tracking accounts payables and receivables
● Generating invoices and payments
● Handling inventory
● And much more!
Spreadsheets are a step above ledgers, but a full-fledged bookkeeping software application can streamline the important financial data points your company needs easy access to. Not only does software help boost accuracy, but it is also a major time-saver due to its high level of automation.
Automate manual processes
Automation goes hand in hand with bookkeeping software. Instead of relying upon yourself or an employee to tediously collect, record, manage, categorize, and access your accounting and financial information, you can enter your data into a program and completely automate it. This means accurate and updated data allow for better decision-making with the most recent data points available.
Need to pull up a financial report or generate payroll? You can do this with ease and efficiency, along with having the latest data points at your fingertips, increasing accuracy and productivity. You can even set reminders, so you never miss a deadline or other important task.
Think of all the time automation can free up. Instead of toiling for hours over payroll, through automation, these tasks can now be done rapidly. Automation also greatly decreases the chances of errors occurring since it’ll flag something if it doesn’t look right, along with eliminating room for misinterpretation as there is in handwritten data entries.
Understand deductions
Deductions are business expenses you can claim to reduce your company’s (or your own) taxable income. Often referred to as “write-offs,” deductions can be utilized by businesses of all sizes. These deductions are costs the business incurs that are “ordinary and necessary” for the industry in which the company operates. Some write-offs are fully deductible, while others are partial deductions.
To qualify for specific deductions (not everyone will have the same type of write-off), you must keep careful track of business expenses and have receipts to validate any claims. Here’s how it works: you add up your total qualified deductions and subtract them from your revenue. The difference will be the total amount of taxable income on your tax return.
Understand the laws and regulations
The IRS and state tax collection agencies have very specific rules and regulations all taxpayers must follow and comply with. Applicable rules and regulations for both individuals and businesses will depend upon their specific tax status and type of business structure.
You’ll also need to comply with specific accounting rules, if applicable, such as the Sarbanes-Oxley Act (SOX) of 2002 and the Gramm-Leach-Bliley Act, along with aligning your company’s accounting practices with generally accepted accounting principles (GAAP).
It is a good idea to familiarize yourself with relevant rules and how each one affects your situation. Consider speaking with an accountant, attorney, or other tax specialist to know what applies to you and ensure you follow the rules. If you don’t, you could face potential fines and penalties.
How Your Small Business Can Benefit From an Accountant
Small business accounting is stressful for many owners who must juggle ongoing operations, day-to-day tasks, and long-term processes, such as accounting, taxes, and securing data. Hiring a third party to help can go a long way toward ensuring your finances are in impeccable order. Your accountant can handle:
● Tax return preparation, filing returns, and, if necessary, filing tax return amendments
● Finding eligible tax deductions and credits
● Preparation of financial statements, including but not limited to balance sheets, cash flow statements, and income statements
● Managing and maintaining financial accounts
● Payroll
● Fixed asset accounting
● Financial analysis, forecasting, and advice
The accountant you choose to work with should have a good reputation, have small business experience, possess proper licenses, provide references, and be willing to have an exploratory meeting to discuss your needs. Thorough communication and attention to detail are two other important attributes to look for in an accountant.
Efficient Small Business Accounting Software
One of the best small business accounting tips out there is investing in accounting software. You’ll quickly discover there are many different products on the market, and you won’t find a one-size-fits-all answer for businesses.
Do your research to determine which software best aligns with your company’s needs and goals. USA Today offers a list of recommendations to help streamline bookkeeping, while PC Magazine offers these suggestions. You’ll likely see some overlap in suggestions which makes them possible good choices.
Explore these and other online recommendations to assist in choosing a program that a) meets your company’s needs and b) at a price point that fits into your business’s budget.
budget.
Be Sure to Obtain your EIN Number
Obtaining an employer identification number (EIN) is an important step to take because it is beneficial to your finances in many ways. You can open business bank accounts, hire employees, get access to more loan options, file business taxes, and be eligible for certain licenses and permits. Not to mention, it gives you a higher level of credibility as a business. To apply for an EIN, you’ll need:
● Name of business, your DBA name (“doing business as”) and business address
● Date you commenced doing business (either by startup or acquisition)
● Name of the individual responsible for the business and their SSN or ITIN
● Type of business entity structure (LLC, sole proprietor, partnership, or corporation)
● The reason why you’re applying for an EIN
● Number of employees currently working for the company or estimate of how many will be hired
Even if you own a very small business where you are the only employee, it’s still beneficial to obtain an EIN. It gives you access to the above benefits and sets you up for potential future expansion. Plus, you don’t have to share your Social Security number with anyone you do business with if they need to report income or other important details for tax purposes since you can supply your EIN as a tax ID instead.
Conclusion
Operating a small business takes a lot of time and energy. Dealing with accounting can be cumbersome, especially if you don’t have a strong financial background because this means you’ll have to spend a good amount of time learning and keeping up to date on government, industry, or other financial requirements.
An easy small business accounting practice is to hire a professional accountant and invest in bookkeeping and/or accounting software to help streamline the process. This way, you maintain current and accurate financial records all year long, and when it comes to tax season, you are prepared and ready to go.
Investing in working with an expert and in software simply makes dealing with the financial end of running a business less stressful and overwhelming.