Tax Tips for New Businesses (From the Pros)
Preparing for tax season can be stressful, especially for a new or small business owner. So, we did some of the heavy lifting for you and sourced the best tax advice that other business owners have received.
Clearly Separate Home and Work
Gregory Rozdeba, Co-Founder and President of Dundas Life advises,
"Separate personal and business expenses. This can be especially tricky if you're conducting business out of your home. However, it's essential because the IRS has strict rules about this. For instance, let's say you use your car for both personal and business purposes. In this case, you need to keep a log of the business uses of the vehicle.
The same rule applies to your finances. Consider opening a separate checking account to keep business spending separate from personal spending. It doesn't necessarily have to be a business account, as long as it is different from your personal account."
A good way to organize your expenses is by keeping a business journal. Use it to keep a daily log of your home business activities such as buying printer paper for your office (attach the receipt!) or the mileage you drive for a meeting. A business journal is the easiest way to keep records that back up your deductions in case of an audit.
"The best piece of advice I ever received was to set up a specific part of my house for my small business and to only use it for my small business," said Mark Aselstine of Wine Club Reviews.
"The resulting write off includes that portion of my mortgage, but also utility bills and everything else I spend on my house. The big thing is that you can't use it for a bunch of other stuff too."
"Small business owners can deduct cell phone costs as a business expense. If you use your personal cell phone for your business, the amount of time you use your cell phone can be claimed as a deduction," explains Annette Harris, Owner and founder of Harris Financial Coaching.
"For example, you can claim 50% of the costs paid for your personal cell phone if you use it for your business 50% of the time. Also, if you purchase a cellphone solely for your business, you can claim the cost of the phone and any additional costs added to your phone plan as a deductible expense. It's essential to document these expenses to record the actual expenses paid."
Consult a Tax Professional
If you're new to doing taxes for your business, you may have a lot of questions or want a professional to check that you've set everything up properly. Everyone's situation is different, so it's crucial to know what's right for your business.
Haris Bacic, the co-founder and CEO of PriceListo recommends that you meet with advisors early on,
"Together with your attorney, a tax professional can assist you in determining the type of legal entity that is most appropriate for you."
"Generally, I advise my clients to begin as sole proprietors," said Bacic. "This is effective when dealing with a single individual who is not partnered. It is the most straightforward method of income tax reporting and the least costly, to begin with. The exit strategy entails removing your sign and walking away — nothing more, nothing less. Naturally, you should consult your attorney and tax professional before making this decision. Individual circumstances vary, and there is no one-size-fits-all piece of advice on this subject. There are legal consequences, and you may have assets that require more protection than a standard insurance policy provides. Alternatively, there may be additional factors to consider, particularly if you have venture partners."
Alternatively, Robyn Newmark, Founder and CEO of Newmark Beauty suggests purchasing a tax filing software for at-home entrepreneurs.
"A tax filing software is without a doubt one of the best investments a startup can make and one of the best business tax saving tips," says Newmark. "At this point, your budget may make hiring a tax advisor, an accountant, or even a bookkeeper impractical. This means that tax software will be advantageous, and it will work for even the most astute entrepreneurs."
"There are numerous excellent software programs available; therefore, you should conduct some research and select the best one. Essentially, it will assist you in preparing and filing your tax returns online, as well as backing up those filings with a guarantee of maximum refund and accuracy."