Entrepreneurs and small business owners strive to get to the point where your company is making money. Phrases like “positive cash flow” or “break even” are music to the entrepreneur’s ears.
When we get to that point, what goes hand in hand with making money is paying taxes on that income. But as an old Northwestern law school professor used to say,
“Taxable income is better than no income.”
Like other aspects of being an entrepreneur, we must understand how to take care of our taxes and our tax filings. With so much to focus on, words like “alternative minimum tax” and “net operating losses” sound like Greek to many of us.
In this article, we will give you five tax tips to help you set a financial foundation as well help increase your understanding of business tax.
Apart from the fact that it is a legal requirement to pay tax on your business earnings, there are many benefits to understanding tax for your business. Most entrepreneurs don’t know that they can significantly reduce taxes by choosing the right business entity or save time when it comes to filing taxes by using the right financial software.
One of the things we talk about as an entrepreneur is “Knowing Where You Need Help” as a skill you must develop and this is definitely one.
These tax tips that not only help with your taxes but put in place some tools that help you manage your finances better. We divide them into three sections:
• Preparing for The Future
• Managing the Filing Process
• Using Tax Breaks
PREPARING FOR THE FUTURE
Tax Time Is A Good Reason to Put in Place Building Blocks for Your Financial Management.
Many entrepreneurs struggle with money issues. The technologist would write code all night long but ask them about accounting and taxes and they shut down.
Filing your taxes can expose you to the basics of financial management such as picking the right resource and getting the right accounting system in place so you can not only “press a button” next year to file your taxes, but you can manage billing, collections and generating the financial reports you need to manage your business.
Don’t Skimp on Financial Help.
Whether it is a part-time consultant, outsourced CFO or just a friend with a tax and finance background, no need to figure this out on your own. There are plenty of experts that can help – even if it is just to file your taxes.
Get The Right Accounting Software.
Every business needs a basic accounting package. And if you don’t believe me, you certainly will when it comes to tax time. Which of the following is you?
You cobble together receipts, bank statements, phone, and credit card statements to piece together your tax return. Or you “press a button” inside your accounting package and it generates your financial statements (and even your tax filings). If you haven’t done so already, use tax time as an excuse to finally get the software to manage your accounting and financial activity.
Make Sure You Have the Proper Legal Entity.
The type of legal entity you use for your company – sole proprietorship, partnership, limited liability company (LLCs), or corporation – has a large impact on your tax situation. For example, certain entities – such as LLCs and corporations that have elected “S” corporation status – pass through all of the profits and losses to the owners.
This means that company losses are offset against any other personal income. You may not be able to do anything about this for 2017, but make sure you consult a CPA or lawyer to make sure you have the right entity going forward.
Understand Net Operating Losses.
Many small businesses lose money in the early years as their business is growing. These losses – sometimes called Net Operating Losses or NOLs – can be carried forward or carried back. This allows you to offset these NOLs against income in years you make money so you reduce or eliminate your taxes in those years. Talk to your CFO or finance contacts to help you take advantage of these to reduce your taxes.
Tax Tips For Your Business
As an entrepreneur you are most likely dealing with a lot of different challenges and taxes are the last thing on your mind but having an understanding of your requirements can actually save time and help you improve financial management in your business.
To learn more about how to manage finances in your business more efficiently and get the intelligence you need to thrive as an entrepreneur, visit our learning community.