Minimizing Your Sole Proprietor Taxes
Starting your own business is exciting and it can some day make you rich. As a sole proprietorship, one unavoidable issue is sole proprietor taxes. You gain some advantages with a business that allow you to reduce the business income subject to taxes. Filing and paying taxes as a sole proprietor usually becomes one of those things you do because you must, but you really do not like doing them.
When you do not like doing something, or more likely in your business you do not have a lot of time to do them, the quality of the process of filing and paying sole proprietor taxes suffers as a result. While not cleaning the office properly merely leaves it a bit dirty, not dealing with sole proprietor taxes in an organized, accurate, and informed manner can cost you a whole lot of money.
What are the tasks and processes that produce quality in dealing with a sole proprietorship’s taxes and pay back the owner handsomely? In this list of tasks and services, some are not directly related to just filing and paying taxes. All have some influence on how much you pay in taxes, but some are other services you may want to hire that can minimize your taxes significantly.
- Bookkeeping – The task of bookkeeping involves entries into ledgers of business income, expense, and financial actions. Today, much of this is done with software or online, but it is a task or service that is more complicated than you may understand. One example is proper categorization of expenses.
As the IRS maintains huge databases of expenses reported on tax returns, they can quickly spot outliers when a category as they see it is out of line with most other businesses. When their computers catch this, you catch a letter or worse and audit. Good bookkeeping personnel or services will stat up to date on IRS regulations and compare your category expenses with similar businesses to catch issues before filing them.
- Preparation of Tax Returns – Each business tax year, the crucial task of tax return preparation jumps into action. The data compiled and posted by the bookkeeping function is submitted and processed to fill out tax return forms. It is immensely helpful if both the bookkeeping and return preparation functions are in the same company, as they can exchange information throughout the year to make return filing efficient and accurate.
- Tax Planning – This is a broad function in terms of what it can cover. Business taxation, even for simple sole proprietor taxes, involves not only business but personal finances of the owner(s). Planning for eventual retirement is one overlapping function. There can be amazing savings in taxes paid if an accountant or other business tax professional helps you to plan business activities like major purchases, depreciation, and even when to defer or accelerate income and expenses.
When these tasks come together in an organized manner, they can save you much more in taxes over time than the costs of hiring the services out. Get help with your sole proprietor taxes to help you to grow your business.