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INFOGRAPHIC - Small Business Report, What SMB’s Need to Know About Taxes

taxes-for-smb-0315-bannerB When it comes to taxes one of the biggest challenges for a small business is navigating the complex landscape of what taxes are owed where. One of the top complaints that small business owners had against their accountants in the 2015 Small Business Accounting Report, was a lack of guidance. With 70% of small businesses outsourcing their tax preparation to their accountant to handle their tax needs it is important that owners maintain an understanding of the basic landscape so that you can make sure your accountant is doing their job properly and so you can prepare effectively for tax season. There are a few different areas you have to consider when thinking about taxes including, jurisdictions, expenses and deductions, and changes to the tax code. It is hard to navigate the many rules and regulations that govern your taxes, but it is important to have a basic understanding of them. Knowing the tax landscape will enable you to keep better records and make informed decisions when it comes time to make deductions, which are an important way to save your company money.

Who do you owe taxes to?

iStock_000001146408LargeOne of the first and most important questions you need to consider when assessing your tax liabilities and responsibilities is who do you owe taxes to and what jurisdictions cover your business. When running a small business you are likely to owe taxes to a few different authorities and this means you have to put together multiple tax returns. At a minimum you probably have to consider your federal and state taxes, but do not neglect the additional responsibilities and localities where you might owe taxes for employees. Also, keep in mind property taxes, sales taxes, and taxes related to payroll. The IRS extended $4.5 billion dollars in payroll tax penalties in a single year.  As Jessie Seaman, a tax professional at the Tax Defense Network explains to Open Forum, “In addition to IRS taxing requirements like unemployment, each state, county, locality and district has its own filing and paying requirements. In just one year, a small business with three employees could end up with more than 10 to 30 tax returns that need to be filed with federal and state revenue agencies.” Your accountant can help determine which jurisdictions you may owe taxes. These can often be influenced by your line of business so working with an accountant who specializes in your industry can be a beneficial.

What are your expenses and potential deductions?

Once you know who you owe it is important to understand what you owe and how you can limit your liability and hopefully keep as much of your hard earned revenue as possible. This involves understanding how you spent your money, what your business expenses were, and how those expenses can be deducted from your tax liability. To navigate this area, an important first step is separating business and personal accounts. It is also important to keep good records of how and why business expenses are made. Mobile apps can be a good way to keep track of your expenses as you go, there are many apps for your smartphone that can help you keep records throughout the year. If you have a good handle on your expenses then you need to determine which expenses can be deducted and how the deductions work. Claiming too many deductions can trigger the IRS and result in fines and potentially an audit, but failing to claim deductions means losing money for your company. In fact, over 51% of SMB companies already feel as though they pay too much in taxes which makes managing deductions an enormous priority.  Deductions fall into many categories from employee pay and inventory to marketing expenses and meals and entertainment. Make sure you understand the different categories for deductions and how you might be able to use them.

How has the tax code changed?

When considering the tax landscape it is also crucial to think about how the landscape changes. Tax rules and regulations are constantly evolving and it is important to stay up to date on the latest changes so you are paying your taxes properly. This is an area where your accountant should do most of the work, but it is still a good idea for small business owners to keep track of changes to the tax code, especially as it relates to them and their business. From new tax credits to tax extenders there have been a lot of changes to keep track of in recent years. tax-infographic-0315 So this year as you work on your taxes keep in mind a basic understanding of the tax landscape, it will enable you to prepare more effectively and work well with your accountant.