Being a small-business owner can be challenging, especially during tax season. Whitman School of Management Professor of Accounting Practice John Petosa offers tips for small-business owners filing their taxes.
1. Put aside enough money to pay all the required taxes such as sales tax and payroll taxes.
Petosa recommends that small-business owners place a third of their receipts in a separate bank account to use when paying their taxes.
Be aware of the filing deadlines. Sales tax is usually due quarterly. Income taxes for both individuals and corporations are also due quarterly. Payroll taxes are usually due by the 15th of the month following the end of the month being paid.
2. Know what to do if you cannot pay an income tax bill in full when it is due.
“Always file the return as required,” said Petosa. “It is a crime not to file the return; it is not a crime if you can’t pay. The IRS will send a notice of deficiency and will often work out a payment plan, if the amount is below certain thresholds.”
Petosa cautions small-business owners that penalties and interest may apply, but encourages them to explore loan options to help avoid the steep interest costs.
3. Keep track of tax liability year-round.
There are many ways to keep good books and records. Software packages are available that help small-business owners track their income and receipts. Small-business owners may consider hiring someone a few hours a week to input activity.
“Too often small-business owners think they have to do everything,” said Petosa. “However, it is usually wiser to hire someone to do tasks the owner isn’t good at so that the owner can focus on things that they are good at, such as selling!”
4. Be aware of what is happening with the IRS and taxation.
The IRS has many publications and websites with easy to understand information regarding taxes, policies and regulations.
“Business owners can also get information by calling the 800 numbers,” said Petosa. “However, please keep in mind that while the IRS staff on the phone is there to help, the advice that they provide cannot be relied upon during an audit. It is up to the taxpayer to obtain his or her own information and advice.”