Like it or not, paying taxes and tax reporting are going to be a consideration for as long as you own your business. There's no way around it. However, there are some things you can do to minimize your business' tax liability and make your relationship with the IRS as pain-free as possible.
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(1) Pay what you owe, when you owe it
For every conscientious tax-paying entrepreneur there is another one who thinks he can put off paying his taxes indefinitely. This is especially true in small businesses that are experiencing a period of limited cash flow. However, there is no escaping the IRS. They will catch up with you, and when they do you will be required to pay the full amount you owe plus interest plus a penalty fee. You are better off trying to pay your taxes when they are due, even if it means negotiating a different repayment schedule with your other creditors.
(2) Be proactive about year-end tax planning
Even though you cannot avoid paying taxes, there are a number of things you can legally do to reduce your tax liability. This is especially true as you approach your year-end tax deadline. Some of the most common things you can do at year-end include:
- Deferring income
- Paying bills early
- Buying supplies and equipment
- Investing in a retirement plan
(3) Keep up-to-date financial records
There's nothing worse than sorting through a shoebox full of receipts to patch together your company's tax information. Keeping your company's financial records organized and current makes your life a lot easier when tax season rolls around. More importantly, it lessens the chance that you will miss legitimate expenses due to lost receipts. Remember, every dollar of documented expenses translates into one less dollar of taxable income.
(4) Hire a professional to prepare your tax return
Paying for professional tax preparation on top of your tax bill feels like pouring lemon juice on a paper cut. But the pennies you save in doing your own income tax preparation can cost you big money.
Professional tax preparers specialize in helping small businesses minimize their tax liability. No matter how good your intentions, as a business owner you simply do not have the time to stay current on the ever-changing list of tax regulations that tax preparers deal with on a daily basis. Although there are many tasks you can do yourself, tax preparation is one area where it pays to leave it to the pros.
Very few subjects cause as much angst for small business owners as taxes. But even if you find yourself facing an unexpected tax burden – relax. The IRS is willing to work with you to set up a payment plan. Of course, they will expect you to pay interest on the amount you owe. However, by working with them you can sidestep penalty fees and prevent giving yourself an ulcer in the process.