By Sharita Humphrey –
Next year’s tax season is probably the last thing on most people’s minds right now. Since tax season ended not long ago, most people think next year’s taxes can wait.
However, there’s no such thing as “too soon” or “too early” when thinking about your future business taxes. Remember: They won’t get any easier moving forward.
So, if you’re wondering what you can do to make your business taxes easier in future years, you’re in the right place! 7 Smart Tips for Planning for Your Future Taxes NOW Click To Tweet
1. Stay informed. Subscribe to IRS Tax Tips to get informative emails about how to save money, tax law changes, and more. You can also get relevant tax tips on IRS.gov or IRS2Go (the official mobile app of the IRS). You’ll receive useful tips each weekday during the tax filing season. You’ll also receive “Special Edition Tax Tips” at other times throughout the year.
2. Establish a tax calendar. One of the most essential tax-planning tools is a tax calendar. You can use a tax calendar to keep track of every important date and deadline. For instance, a tax calendar allows you to note the dates when payroll deposits are due. Also, you can list filing deadlines for business forms, such as 720s, 1099s, and W-2s.
If you’re looking for a reliable tax calendar tool, the IRS has one you can use. This calendar tool can be customized to suit your unique business needs. For instance, it allows you to specify the type of tax event, as well as the days on which the events should be displayed. You can either subscribe to it or download it here: www.tax.gov/calendar/subscribe.
3. Classify your business correctly. How you classify your business today will affect how it will be taxed in future years. So, make sure to classify your business correctly! Failure to classify your business correctly could result in overpaying taxes. Deciding whether to classify your business as either a Sole Proprietor, Single Member LLC, Limited Liability Company, S Corporation, or C Corporation will impact your taxes. It’s important to consult a tax professional when deciding how to classify your business.
4. Run some “what-if” scenarios for future tax years. Not sure where to start on your tax planning? Try running some “what-if” scenarios! Some “what-if” scenarios to consider may include: “What if my tax bracket changes?” “What if I need to get a refund? Or, “What if I can’t afford to pay the tax I owe?’
You can use a tax calculator to perform those “what-if” scenarios for current and future tax years. For example, if you want to calculate the right amount of tax withheld from your paycheck, you can use the Tax Withholding Estimator from the IRS: www.irs.gov/individuals/tax-withholding-estimator.
5. Keep accurate, detailed, and updated records. Consistently keeping accurate, detailed, and updated tax records will make it easier for you to organize, check, and file your business taxes. With inadequate and inaccurate record keeping, you could be leaving out some deductions, or worse, you could be putting your business at risk for an audit.
It is recommended that every business invest in some form of accounting software (even a basic one will do!). It’s inexpensive, user-friendly, and most importantly, it can help you monitor and track all your expenses and income. Remember: Staying organized doesn’t just help you in the present — it can prove advantageous in the future too!
6. Track expenses. Related to tip #5, you should also make sure to track your business expenses — and always keep accurate, detailed, and updated records of those transactions. Remember: The IRS allows credits and tax deductions for qualified business expenses. By keeping track of all your business-related expenses throughout the year, you can take advantage of all the credits and deductions available to you.
You can deduct the cost of business travel, legal expenses, home office costs, and gas mileage, among others. If you have employees, you can deduct their pay too, as well as additional benefits paid to workers. Tracking your business-related expenses (and keeping accurate records) will help ensure that you don’t forget them when preparing your tax return.
7. Consider hiring a professional tax preparer. If you want to hire a professional tax preparer, start your search now. Choose your tax preparer wisely, and hire one with the qualifications and credentials you prefer. By hiring a tax preparer ahead of time, you avoid rushing the process of hiring one just months, or even weeks, before filing your taxes. A tax preparer can help you organize and better prepare your taxes.
The Bottom Line
As a business owner, you have a lot to think about — from your daily business operations, growing and maintaining your customer base, innovating new products and services, and more. But, one thing you should never forget — and always stay on top of — is your business taxes.
The tips mentioned above are smart strategies that you can adopt NOW to make your business taxes and tax filing easier for next year and the years to come. Make sure to keep them in mind!
About the Author: Sharita M. Humphrey is an award-winning finance expert, money mentor and Certified Financial Education Instructor. Once broke and homeless, Sharita completely transformed her life and is now a successful entrepreneur and one of the most in-demand money coaches for individuals and business owners of color. In 2020, Sharita was named National Financial Educator of the Year.