How To Prepare Your Small Business For Tax Season
Managing a small business can be challenging, and there are so many factors that you’ll need to think about to make it a success. Paying your taxes is a non-negotiable in business, and this is something you must consider so that you can manage your payments correctly and file returns accurately and easily. Running a small business might mean that you do not have the funds to spare to pay accountant fees, if this is the case – don’t worry! You can manage your taxes online with ease throughout the year. Read on to find out more about tax season and how you can prepare for it.
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When is tax season?
Each business, no matter the size must stick to the dates and deadlines for each financial year. In the UK, the tax year runs from the 6th of April to the 5th of April the following year, whereas in the US, the tax year runs from January 1st to December 31st each year. There are a few deadlines that you will need to stick to throughout the year to ensure that the taxes for your small business are submitted in time and depending on the type of company you run, your tax payments will differ. It can seem complicated and overwhelming if you are managing filing taxes yourself, but with various online tools and software, you can get your documents together to file your taxes when necessary. So, why is paying your taxes so important?
Why is tax important?
All businesses must pay taxes on their income, and it is important that you keep up to date with it so that you do not get into trouble. Keeping on top of your taxes means you won’t be paying too much, which is like giving money away, and you won’t be paying too little, which could land you in a tricky situation. Getting your taxes right means your business will become profitable and can avoid any trouble!Below, we’ll look at a few factors that you will need to consider when getting your documents and information to file your returns.
Three sections of Tax
There are three main sections that you will find that you are taxed on within your small business, that you will need to report when filing a return. It is essential that you have all your information to hand when filing your reports, as a way of ensuring that they are all presented and filed correctly. Here are the three areas that you will need to report.
Income
The amount of income that your business makes must be reported when preparing your taxes. This can include factors like dividends and capital gains. The higher your business income is, the more tax you pay – there are ways in which you can lower how your income appears when filing your report, but it is best that you consult an account when doing this because it can get technical!
Deductions
This refers to anything that you use within your business that goes towards business operations, such as mileage expenses and office expenses, machinery costs and other costs that you could not run your business without. You can itemise your deductions when filing so that you can determine your overall tax rate on your income.
VAT tax returns
We all must pay value-added tax when running a business. It is a tax that is applied by the government on the sales of the goods or services that you supply. You, as a business, collect VAT on behalf of the government in the products and services that you sell, and then you must pay the government back the VAT once your report is filed. VAT is determined by your accountant throughout the year – they will then condense it into a report that will be filed, and you will then pay the amount that you owe. It can be difficult to do this yourself, but with the help of your chosen software, or your accountant, you can track your VAT easily throughout the year, ready to make your payment.
Software Vs. Accountant
When it comes to preparing your business for the tax season ahead, there is one decision that you will have to make, that could make your life a little easier as a business owner. Many businesses enlist the help of an accountant so that they can trust professionals to get their taxes done and give them peace of mind that they have been filed correctly. This can make managing your taxes a lot easier, it reduces your stress and allows you to focus on the most important areas of the business. Although an accountant may be helpful, you will also need to pay them a fee – so if you’d prefer to save money, you can choose another option to help with your finances.
If you’d prefer to keep track of your taxes yourself, you can do this with the help of tax software. The helps you to add up your income and expenses over the financial year, but it will be up to you to input your figures carefully over the year. Using these online tools is advantageous for smaller businesses as they are affordable, and as long as you input your figures correctly, your calculations will be accurate. They also allow you to file your taxes quickly and easily.
