5 Minute Read
Small-business owners are one of a kind. Entrepreneurs by nature, small-business owners know how to grow their businesses, land clients, and crank out product. That’s the fun part. Managing the company’s finances, on the other hand, is the not-so-fun part. Who wants to balance spreadsheets, fill out quarterly tax forms, and file annual returns when there are customers to serve? Even Dave, a numbers guy at heart, admits he hates doing the accounting for his business.
You run a company. We get it. You have a list a mile long of things you’d much rather do than taxes. But, look, you can’t dodge your financial responsibilities and expect to be successful. So take the next 10 minutes and learn more about how to tame the tax tiger roaming about your business.
Tax Burdens Grow as Your Business Expands
When your business is a one-person show, your accounting duties are relatively simple. Basically, you need to:
- Keep a separate checking account for your business, and use it for business income and expenses only.
- Pay yourself a salary from this business account, and deposit 25% of your pay into a separate savings account for your quarterly estimated tax payments.
- Pay your self-employment tax, also known as Medicare and Social Security taxes, when you file your annual tax return.
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But as soon as you hire one team member, taxes get way more complicated. With an additional team member, you’ll need to track your own taxes, manage business income and outgo, calculate payroll, assess federal and state income taxes, and determine federal unemployment taxes.
Are you tired yet? Hope not, because we haven’t even talked about sales taxes for our friends in retail.
Tax Troubles Can Tank a Business—Fast
Bad money management—especially in the area of taxes—is one of the main reasons businesses fail each year. A recent Statistic Brain study of business start-ups shows that half of new businesses shut their doors after just four years. For nearly half of those, the major causes of failure were errors in record keeping and non-payment of taxes.
The IRS is famous for charging steep interest and penalties on unpaid taxes. So be diligent with your record keeping, even if someone else is managing your books. Take it from Dave. Once the company was large enough for him to hire a bookkeeper, he handed off all his accounting duties and relied solely on the bookkeeper’s report, which showed all the business’ accounts, including payroll taxes, were up to date.
But while Dave and his family were on a trip to Disney World, he got a call that IRS agents were at his office, preparing to padlock the doors due to unpaid payroll taxes. Fortunately, Dave, a big believer in being prepared for emergencies, had enough money in savings to cover the tax bill and keep the doors open, but it was an expensive (and stressful) lesson learned. Always know what’s going on with your business’ finances.
Hiring a Pro Is the Way to Go
Dave’s story might discourage you from delegating your business’ finances. But don’t think twice about hiring some help. Just learn from Dave and pick a pro who has solid business accounting and tax experience. As the leader, your time is often better spent concentrating on the day-to-day task of building the business. Relying on an expert to handle the bookkeeping and tax responsibilities is a smart way to make that happen. If you take this route, follow these two guidelines:
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First, find a competent, trustworthy professional. Before you ask someone to assume your financial duties, look at their past experience and call a reference or two. A good bookkeeper will be worth their weight in gold. An experienced accountant will not only save you time, they can save you money on taxes simply because it’s their business to know more about taxes than you do.
Second, never forget that as the leader, you are ultimately responsible for knowing the true state of your business finances. It is not your accountant’s job to keep watch over your business and alert you to problems. That’s the job of your chief financial officer—one of the many hats you’ll wear in the early days of your business.
Get to Know Your Pro
You don’t have to hire a full-time bookkeeper or accountant to keep your finances organized. Outsource your financial tasks to a tax professional who is experienced in handling business accounts. You’ll want to work with a pro with either of these two licenses:
- Enrolled Agent: An Enrolled Agent must pass a comprehensive examination that covers individual and business tax laws. They must meet continuing education requirements to maintain their licenses, and they can represent their clients before the IRS if they’re audited.
- Certified Public Accountant: CPAs undergo extensive training and testing, and must meet ethical and continuing education requirements as well. Many specialize in business tax preparation and planning. The more complicated your taxes are, the more a CPA can help with strategic advice specific to your situation.
In addition to these licenses, your tax pro should have a reputation for super-serving their clients. The right pro should be dedicated to saving you time and money on your taxes.
The bottom line with small-business tax prep is to be diligent, thorough, and in the loop at all times.
Don’t know where to start? We can put you in touch with a licensed, skilled, top-notch tax pro who has earned Dave's recommendation in your area today.