Tax season can be a confusing time for many small business owners. It’s best to consult an experienced tax accountant to avoid tax debts or the possibility of missing any available tax breaks and deductions. They can help with detailed tasks and free up time to do what you do best – grow your business. To find the appropriate tax preparer, you need to ask the right kind of questions. Here are the top questions to ask your business tax preparer.
What Records Do I Need to Keep?
You must keep track of all business records to file taxes correctly, monitor profitability, and acquire funding. Moreover, you should always have your financial records handy in case of an IRS audit. Your tax preparer can tell you which financial records are needed for your specific industry, but some standard documents to keep include:
- Business tax returns
- Financial statements
- Cash flow statements
- Statement of retained earnings
- Income statements
- Balance sheets
- Credit card statements
- Check registers
- General ledger
- Business agreements (such as operating agreement)
- Business licenses and permits
- Bank statements
- Insurance documents
- Payroll records (payroll tax forms, pay stubs)
To protect your recordkeeping process, consider keeping both paper and digital copies.
Which Business Expenses Can I Deduct?
You can deduct some business expenses from your tax return. Depending on your business and entity setup, here are a few tax deductions you may be eligible for:
- Business travel
- Employee expenses
- Home office
- Business use of car
- Charitable contributions
When claiming your small business tax deductions, tread cautiously since each type of deduction has a specific set of rules to be followed. Your tax preparer will help you figure out which ones to take advantage of and how you can claim them.
Do I Have the Right Entity Structure?
Choosing the correct business structure is usually the first step you make when starting a new business. There are pros and cons to every type of entity structure. It is essential to discuss this with your accountant so they can point you in the right direction. Here are the common types of business structures:
- Sole proprietorship: Owned and operated by one person
- Partnership: Operated by two or more individuals
- Corporation or C Corp: Has separate legal entity from the owners
- S corporation or S Corp: Profits and losses are passed directly to the owner’s income without being subject to corporate tax rates
- Limited liability Company (LLC): Includes aspects of a partnership and corporation
Different entity structures have different sets of rules when it comes to legal liability and taxes. An experienced accountant or CPA can discuss the tax and legal requirements to help you choose the proper entity structure that best suits your business.
How Can I Manage Cash Flow Better?
To run a successful business, you must maintain a healthy cash flow. Working with a professional accountant can ensure that your cash flow doesn’t head south. They can help you manage your cash flow, identify and analyze problems, and craft a plan to improve it. Additionally, your accountant can help you establish a cash flow projection plan to ensure future growth.
Will My Side Job Affect My Taxes?
Anytime you improve your income, there is a potential of increasing your taxes. Ensure you’re withholding the correct amount of money to cover your taxes, especially if it’s your first time getting a second job or side gig. If you are self-employed, always keep receipts of all your business expenses and a journal of the miles you drive for your job.
If you work part-time as a freelancer, for cash, or as an independent contractor, you are considered self-employed. Therefore, you must include the income on the Schedule C, Sole Proprietor, in your tax return.
More Questions? Ask a Professional
Consult with your accountant to understand which taxes apply to you and your enterprise. They can also answer any other questions you might have and discuss the process of preparing and remitting your taxes, including when they are due and what forms to use. Revisit these questions periodically to ensure your enterprise stays up-to-date with any new tax laws and regulations.