Many small business owners are unknowingly filing the wrong tax return form for their business, do not properly keep records, and do not have a spreadsheet or do not use any software to track their profit and loss from their business venture. This is not standard practice to run a business because you could not have an overview of the performance of your business. Several business owners believe that the statement they could get from their banking institution is enough. That is not true because the information from your bank statement is not as detailed as that from your spreadsheet or any software program that you use and often times business owners commingle their business expenses with personal expenses.
Regardless of the type and size of your business, you must conduct some research and seek professional advice before you start your business. You could learn a lot from a successful business owner. Many professionals offer free initial consultation.
After you identify the type of business that you are going to start, you must ensure that you start with the right business entity and you should know the tax consequences of your business entity selection.
Another consideration should be the legal protection of your business income from high tax liability. If you do not plan strategically and carefully, your business income will be subject to high tax liability. You must have a good accounting system that ensures your business is ready to benefit from any unforeseen opportunity and to keep track of income and expenses.
A good accounting system ensures that your profit and loss are correctly recorded and your expenses are properly classified. When you start your business or have a current business, you incur several expenses that are treated differently for tax reporting purposes. Tangible and intangible items of expenses might require to be amortized or depreciated. You must keep track of the cost of all items and the date that you placed them in service.
Your business financial records set you apart from other business owners who do not have a good accounting system for their business. A business financial record is needed to apply for loans, grants, credits, mortgages, and to conduct other financial transactions. A good accounting system is also a great protection in case of an audit.
You should keep your receipts or evidence of expenses for as long as necessary to administer the provisions of the tax code. As most receipts fade after a certain time, it is advisable that you scan your receipts.
Your tax filing obligation starts once you register your business with the Internal Revenue Service even if you have not actively running the business or you have no income from the business. The IRS will not know until you file. Each business requires a different tax form. Be sure to file the correct tax form. When you register your business with the IRS, you receive a letter telling you the tax form you must file and the date that it is due. The IRS also advises you to keep this letter in a safe place because they will not provide you with another copy.
The first tax return for your business is the most important tax return. It must be legally and accurately done.
A taxpayer could be good at preparing a personal tax return and a personal budget. However, a business bookkeeping and tax return should be entrusted to a tax and accounting professional. Do it yourself would take away valuable time required to run the business and could cause costly mistakes. You could miss some deductions and incorrectly recorded some expenses. It would cost much more to get a professional to correct the mistakes. Further, when business owners wait until tax filing time to bring all the receipts and bank statements to the preparer, it takes longer time to prepare the returns, which would cost more for preparation. Some expenses and and income might not be accounted for or not properly reported.
Do not alone act on the advice of friends, family members and others who might know as much as you do. You could be in the same business as your colleagues, but your financial situation is very different.
Know your business tax return! Do not wait until when you try to set up a payment plan with the IRS for your personal return to find out that your business tax return was not filed with the proper form.
Do you know that you could reduce your tax liability by proper tax planning strategy as individual or business owner?
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