Recently updated on October 25th, 2022 at 11:29 am
The U.S tax code is so complicated that, according to the editor-in-chief of The Tax Law Review, most filers make mistakes on their taxes.
There are countless mistakes that small businesses can make when it comes to filing their taxes. This includes not applying the right business deductions, not making estimated tax payments during the year, and not separating their personal and business expenses.
One of the best things you can do to stay on top of your taxes as a small business owner is to stay organized. Accounting software or hiring an accountant can help to ensure that you are paying the right amount of taxes, no more and no less.
Are you interested in learning some accounting tips for small businesses? Let’s take a look at eleven tips to help you make sure your accounting is as simple and stress-free as possible.
1. Separate Your Personal and Business Expenses
Table of Contents
- 1. Separate Your Personal and Business Expenses
- 2. Accurately Record Your Income
- 3. Track Every Business Expense
- 4. Consider Hiring a Professional
- 5. Create Dedicated Time to Update Your Books
- 6. Use Automation to Your Advantage
- 7. Maintain Inventory Records
- 8. Prepare Yourself For Major Expenses
- 9. Keep Tabs on the Cost of Labor
- 10. Follow Up on Receivables and Invoices
- 11. Create Financial Projections
You can end up saving you a lot of time and headaches if you have a dedicated business bank account. When it comes time to tally up to do to build business expenses, you won’t have to parse through all of the items you personally bought this year.
When you keep a dedicated business bank account and a dedicated business credit card, it also limits your legal exposure to the debts of your business if you have a corporation or an LLC.
2. Accurately Record Your Income
Revenue from sales, loans, and other infusions of cash into your business can be hard to keep track of. However, it’s essential that you continually keep track of the cash flow that’s rolling in.
If you don’t do this, you might end up not paying as much as you’re supposed to in taxes. This can mean you have to deal with IRS penalties, which no one wants to deal with.
3. Track Every Business Expense
When you track your business expenses, it helps to make sure that you can maximize your tax credits and write-offs. It’s a good idea to use your business credit card for purchases so that there are digital records of your transactions rather than having to keep a million paper receipts.
You can also use accounting software such as a business expense tracker to help keep track of invoices you’ve paid and checks you’ve written.
4. Consider Hiring a Professional
You might consider hiring professional accounting services or a bookkeeper, which can make a huge difference even if you enlist their help only for a few hours per week or month. They can help you keep your records orderly and up-to-date. They also will be aware of potential loopholes, fees, or tax deductions that can be helpful to your business.
If you’re looking for help managing your finances, check out the services this company recommends to ensure that all the needs of your back office are met.
5. Create Dedicated Time to Update Your Books
It’s easy to let invoiced receivables and receipts pile up. Instead of going into panic mode around tax time, take some time every week to stay on top of necessary paperwork.
Using accounting for small business software can also be a huge help in this regard. You’ll end up saving time because of the way that software like QuickBooks, for example, can automatically categorize expenses and income.
6. Use Automation to Your Advantage
Any small business can benefit from business accounting software. You can either give secure access to your accountant or bookkeeper or use it on your own.
7. Maintain Inventory Records
Did you know that U.S. businesses lost $50 billion every year to employee theft?
The best way to combat losing merchandise to theft or misplacement is to keep a detailed inventory of products that enter and leave your business. Some small business accounting software will integrate with inventory management tools, or you might consider buying a stand-alone inventory management software.
8. Prepare Yourself For Major Expenses
You don’t want to be surprised by tax deadlines, equipment replacement, or computer upgrades. It’s common for big purchases to pop up during slower months. This means that you’ll want to plan ahead so you don’t get crunched for cash when cash flow is low.
9. Keep Tabs on the Cost of Labor
Your business might spend as much as 70% of its total budget on paying employees, including you. You’ll want to be aware of the benefits, overtime, and perks that you pay out to make sure that you aren’t paying out too much or too little.
Either accounting software or an accountant will also be able to help you calculate and pay the payroll taxes you owe.
10. Follow Up on Receivables and Invoices
It’s easy to send an invoice and simply assume that you will get paid. It’s a good idea to circle back with vendors who owe you money in order to avoid spending hours sifting through your receivables listing and revenue account. This will also help to ensure that you avoid overpaying on taxes.
You’ll want to always send invoices right after a job is done. This helps to increase the chance that you’ll be paid promptly. As the deadline approaches, follow up with friendly reminders. It can be a good idea to accept online payments to make this process simpler and automated.
11. Create Financial Projections
Just because your business is doing well financially today doesn’t mean it will continue chugging along that way ad-infinitum. You can use financial reports and projections to help estimate the future of your company one, two, or three years down the line.
These Accounting Tips Can Help Tax-Time Be as Low Stress as Possible
As the saying goes, only two things in life are certain: death and taxes. While it sounds a bit grim, taxes don’t have to be a disaster every year when you put a system in place for your small business. Accounting for small businesses can be complicated and overwhelming, but with the help of the organization, systems, accounting software, and an accountant, it doesn’t have to be so bad after all.
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