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4 Tax Tips for a Growing Your Small Business

by
Bob Mason
on
5/7/2017
4 Tax Tips for a Growing Your Small Business

You run a small business, but you don't anticipate that it'll be small forever; you're quickly growing, and perhaps you're even looking into hiring more employees. This is all exciting news, but at the same time, you'll also want to prepare for the tax implications of running a growing business. As your company grows, you may find yourself facing unique and complex tax situations. Fortunately, by following a few simple tax tips, you can keep your growing business in the best position for long-term success.

Know Employee Tax Rules

First of all, if you're just getting to the point of needing to bring some employees onboard, now is the time to make yourself aware of specific tax rules and regulations for W-2 employees. For example, you'll need to set up a payroll system that withholds your employees' Social Security and Medicare taxes (FICA). From there, however, you'll also need to match your employees' contributions in this regard. 

You'll also need to have all of your employees fill out a W-4, which will allow employees to designate their exemption status and indicate how much you need to withhold from their checks for Federal, state, and local (if applicable) taxes.

Finally, understand that you'll also need to pay unemployment taxes as soon as you hire your first official employee.

Pay Taxes Quarterly

As a small business owner, it's also recommended (and in many situations, required) that you pay your taxes on a quarterly basis—rather than paying them in full at the end of the year. Specifically, the IRS mandates that all self-employed workers and small business owners pay their taxes quarterly if they anticipate owing $1,000 or more in taxes at the end of the year. If you fail to pay quarterly, you could end up being subjected to some hefty fines and penalties, in addition to interest, on the money owed. 

Quarterly tax payments are due in April, June, September, and January of each year. If you anticipate owing, now is the time to begin making quarterly payments. Even if your business income is unpredictable, you'll need to do your best to estimate your annual income and pay accordingly.

Hold Onto Tax Documents

All too often, small business owners make the mistake of shredding their tax documents after a couple years with the assumption that they won't need them again down the road. However, this is a dangerous assumption to make. By law, the IRS can choose to audit returns for up to six years after they're initially filed. In the unlikely event that you were to get audited, you'd have a hard time defending yourself without the necessary paperwork and documentation from that year's tax return. To be safe, then, it's recommended that you hold onto your tax returns and other documentation for at least seven years. Keep both paper and electronic copies of these documents.

Take Advantage of Deductions

As a small business owner, of course, you're going to be eligible for some tax deductions. Unfortunately, many business owners don't take full advantage of the ones they're entitled to. This is where it can be extremely useful to work directly with a tax specialist, who will help you prepare your return and ensure you're taking all the deductions and credits that you're entitled to by law.

Most business owners are aware of the basic deductions they can take, such as those related to business travel, new equipment, or even the rent/mortgage payment on a commercial property. However, there are dozens of less-obvious business deductions out there that you'll also want to be aware of, such as those for business-related software subscriptions, office supplies, and the like. Just be sure to keep the necessary documentation (receipts, mileage ledgers, etc.) to prove your eligibility for these if you plan on claiming them.

On the same note, be aware that there are some deductions you might think you can take, but really shouldn't. The home office deduction is a frequently hot topic, for example. Technically, you can only take this deduction if you have a dedicated room in your home used exclusively for work-related activity. In other words, if you have a desk set up in the corner of your dining room, this doesn't count for the home office deduction, unfortunately. It needs to be a dedicated, closed-off space, and you can only deduct the portion of your mortgage that you pay for that dedicated square footage.

As you can see, there's a lot to keep in mind when it comes to taxes and your growing business. By following these important guidelines, however, you'll be in good shape as a small business owner. From there, you can continue to grow your business and enjoy your much-deserved success.

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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