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- Small Business Accounting and Tax Secrets You’re Missing
- What are the Hidden Secrets of Small Business Accounting?
Picture this: you run a small offline or online business and have an accounting system that helps you keep tabs on your growth and still have enough time to do other value-added tasks. Wouldn’t that be awesome? Well, this is where learning the small business accounting hidden secrets medium by Matt Oliver comes in.
The essence of these hidden secrets is to spend less time dealing with accounting transactions and have more time doing something that adds value to your small business, say sales, marketing, and saving money on taxes. If you follow these secrets, you can maximize your earnings.
Having said that, our tips here are general legitimate tax-saving strategies and accounting secrets, so it’s important to have a good discussion with an accountant regarding your specific situation.
Related: Accounting Software Reviews for Small Businesses
Small Business Accounting and Tax Secrets You’re Missing
Did you know various tax strategies’ll save you thousands, if not millions of dollars, every year? Yes, the following secrets can make you bulletproof for an IRS audit.
Pay Yourself a Reasonable Salary
Paying yourself is a way of reflecting a high cost in your company book. One of the practical reasons to pay yourself, depending on the organizational structure of your business, is the probability of giving yourself a tax break. Yes, this is especially if you run an S corporation.
You can achieve this by designating a personal salary out of your total business income. This basically applies while you file as a sole proprietor: self-employment tax.
Understand the Sales Tax
In the United States, there’s no sales tax from the federal government. Sales tax is only imposed on the state and local levels.
The implication is that every state and every locality can have different tax laws and rules that need to be followed.
You also need to be aware of whether your state operates sales tax or not. But remember your business only has tax nexus if it’s physically located in a state, if you have an employee(s) located in a state if you have a warehouse or inventory in a state, and also if you’re selling a product or an item.
Related: TurboTax for Business Review in 2023
Make Sure Your Income Matches the 1099KS
You have to make sure that the income you record matches what is filed to the IRS at the end of the year. This is why you need to take your Closing Month of Accounting Year seriously.
For instance, if you had $100,000 in sales but only received $95,000 in your bank account. This will be an immediate red flag to IRS because your 1099 shows a higher amount.
It could be that there were merchant fees, chargebacks, or refunds that got subtracted from the sales before being deposited into your bank account, but IRS wouldn’t know that. So you’ll need to adjust the entries to make sure everything tallies.
Employ Your Family Members
This might sound weird and shocking but letting your kids or spouse undertake some of the tasks in your business is a good way to save cost. Seriously, why hire someone else if your spouse or kid can sweep the floor?
Besides, they get to learn as well as participate in the business. And you get to keep the money in the family and tax-free for your kids.
Run Your Vehicle Expenses Through the Business
First, check with your accountant, if you have one, to be certain of the percentages. Or look at it from this perspective: what percentage do you need to take back as your personal use of the vehicle?
As long as you follow the rules and do not cross the lines, you can live that before tax life. Be strategic about what to include as your business expenses.
Avoid an IRS Audit
One of the ways to do this is to open a separate bank account when you start a new business. It is not advisable to pay for all the start-up costs and expenses on your personal account.
This can bring about misreporting in the long run. A separate account will enable you to have a clean record of business items and simply make sure there is no combination of business items and personal expenses. Also, make sure you have a separate credit card.
Don’t forget to file your tax on time. Even if you need an extension, ensure that your extension is filed in time.
Related: Closing Month of Accounting Year: Definition and How To Choose For Your Business
In running a small business, it is important you keep everything organized in one place. Yes, a strong bookkeeping system will help you record and analyze financial transactions as well as defend your business expenses.
There are various accounting software for small businesses that can help you achieve that.
The downside, however, is that you might end up spending more time doing this than other tasks that could add more value to your business, such as marketing and sales.
This is why Matt Oliver’s small business accounting hidden secrets suggest you might have to outsource your bookkeeping.
What Does It Mean to Outsource Your Bookkeeping?
Matt Oliver suggests using either a traditional bookkeeper or using online bookkeepers but opted for the latter in his personal experience.
Specifically, he went for Bench, a leading accounting company in North America with headquarters in Vancouver, Canada.
They took care of all his bookkeeping tasks, including tracking his finances and communicating with the team.
Other bookkeeping companies you can outsource your bookkeeping tasks to include TAD Accounting, Booka2Taxes, IgniteSpot, Accountingdepartment.com, Outsourced Bookkeeping, and Whiz Consulting.
Ditch the Papers
In addition to outsourcing your bookkeeping, you can also make use of cloud-based tools to keep a record of your receipts. This makes it easy to hand over necessary information to IRS if they come calling.
You can even write out specific details on the receipt before uploading them.
For instance, you can write who incurred the expenses, what it was about, where it was made, why it was made, and how much was spent. This will help you back up the business purpose of your expenses even after many years.
Examples of cloud-based platforms you can make use of include Wave Accounting, Shoeboxed, Expensify, Zoho, and FreshBooks.
Some of these platforms will allow you to easily take pictures of your receipts and easily upload them, as well as connect them to your bookkeeping platform.
Track Your Expense Statements
If you run a small business, you need to learn how to control your expenses to turn a profit. So you need to keep an expense record with fixed and changeable income.
Make sure you account for fixed incomes like office rent. Also, keep other variable costs under control, such as the cost of traveling for business events, because they are closely related to your income (and often sales).
Monitor Your Income Statements
An income statement is a financial report that summarizes costs, income, and profit for a certain period. This will help you know your profitability and spot areas where expenses are too high and earnings are too low.
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Ditch the Cash
Receiving cash payment can have its side effect because there’s hardly a trace. But the way out is to offer receipts when clients pay with cash.
So again, make sure everything is documented correctly. Also, have a receipt for any cash payment that you make. With that, you can back up any expense in the event IRS calls. But in general, you have to avoid cash transactions as much as possible.
Having a strong bookkeeping system should be one of the most important items on a small business checklist. So you can check out cloud bookkeeping software like QuickBooks, Zoho, and Xero.
However, that means you should be ready to spend hours doing your accounting stuff by yourself. You can also opt for online bookkeeping companies, which saves you a lot of hours.
Or still, employ the services of traditional bookkeeping companies that’ll be quite thorough with your stuff but might require more time both from you and from them.
- freshbooks.com – How to Do Accounting for Small Business: Basics of Accounting