Keeping up with documentation and separating personal from corporate bank accounts can help self-employed folks prepare for tax filings.
The April 15 tax deadline for personal returns is looming.
Though business taxes are collected periodically throughout the year, many business owners are taking stock of their finances.
There are several areas entrepreneurs must pay attention to, says Gerri Detweiler, education director at Nav.com, a business credit and financing website that serves thousands of self-employed people.
Detweiler encourages franchisees to take the follow steps:
Document—and separate—expenses. According to a survey, one in five small-business owners fails to set up a business bank account. Life will be easier, especially around tax season, with a little fiscal diligence, Detweiler says. It’s easier to track purchases for business versus personal purposes when there are separate accounts.
A former entrepreneur, Detweiler understands the demands of owning a business.
“People who are new to entrepreneurship are often busy from the beginning,” she says. “You actually have to go inside the bank to open an account. There are time constraints.” Shopping around is a good idea as well, Getweiler says, but there are often “not enough hours in the day.” By the time many new business owners get around to it, things have gotten complex, she says.
Detweiler points out that maintaining up-to-date records will also help when owners apply for credit and financing. “If you’re keeping up with bookkeeping and business accounting, it will make things a lot easier.” They go hand in hand, she says. “Scrambling at tax time to track down expenses isn’t a good feeling.”
Stay current with staffing changes. As employees are hired, payroll is the most important obligation for any business, says Detweiler.
“Falling behind with payroll taxes brings penalties that can sink a company,” she says.
Misclassifying employees and subcontractors is a common mistake, Detwiler says. An estimated 3.4 million employees are classified as independent contractors when they should be reported as employees. Whether that’s intentional or not, the Department of Labor and the Internal Revenue Service take misclassification seriously. State and federal agencies perform regular audits looking for workers with the wrong classifications. Costly penalties and fines could ensue.
Get support from knowledgeable professionals. Although some shop owners prepare their own returns, others prefer the guidance of an accountant or other business professional. Detweiler also suggests that the self-employed access their local Small Business Development Centers for resources and expertise. Work with someone you trust, she says.
This year, entrepreneurs must also navigate the newly enacted federal Tax Cuts and Jobs Act. A post on Chase.com says business pass-throughs, capital deductions and the structure of a business can be confusing for the self-employed. Tax planning is crucial to managing cash flow, so “it’s particularly important that business owners understand changes and the impact it may have on your firm,” the post said.
In the end, Detweiler says it’s still early in the tax season to get organized. “If you didn’t do a great job in 2017, there’s time to get it together for 2018,” she says.