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Tax Tips for New Businesses


Posted on May 15, 2014

Congratulations! You are the proud parent of a bouncing baby business!

You took the plunge, you did it, you own a business. Well, just like parenthood, both have their rewards, but both also provide a new level of work and commitment.

Let’s compare your business books to the baby book you meant to do. Just because you shove some newspaper clippings, hair clippings and a random photo in a notebook, does not mean your child will be able to decipher your intent. On that same note, the IRS isn’t so fond of the shoebox full of receipts.

Eek! We’re almost halfway through 2014, time to get those books in order. You’ve got two options: procrastinate and let your accountant grill you, curse you and whip your books back into shape (at a hefty price tag of course) or take the DIY approach and organize yourself now. A half a year’s taxes are way more manageable than a full year. So, in essence, what I’m trying to say is, “DO IT NOW!”

For those of you still reading, that means you want my help. Let’s do it.

Tip #1: Choosing an Accounting Method – Actual Cash Flow versus Accrual

Before I even explain the two methods, you should keep in mind that the IRS requires you to use the accrual method if your business is a C-corporation, has an inventory or makes more than $5 million per year.

Yes, there are exceptions, but those should be discussed with your accountant.

The method you choose to report on your taxes can be changed later using IRS Form 3115.

Consider this –

Timing of Accrual Method:

  • Income is based on billing rather than income received
  • Expenses are based on vendor bills rather than bills paid

Timing of Cash Method:

  • Income is based on monies received rather than bills sent
  • Expenses are based on bills paid rather than statement dates

 

Tip #2: Take a Photo and Make Note of Date | Amount | Description

Capture everything.

 

Business Owner #1 set up a specific gmail account so that every time she had a business expense, she took a photo of the receipt with her phone and sent it to her receipt email account with a description note. This type of extra step will make a huge difference later on.

Business Owner #2  tried to save every scrap of paper, but the receipts faded and there was no description on any slips so the paperwork was useless.

Be Business Owner #1 and Set Yourself Up for Success Rather than Gamble on the Unknown

 

Tip #3: Make a Monthly Tax Date With Yourself

I know taxes aren’t the most fun part of being a business owner, but just like changing diapers, every parent has to do it.

Once a month, make an appointment and spend some time recording those captured receipts in a spreadsheet, accounting software or passing the data to your bookkeeper. This monthly date is a great time to ask your bookkeeper if you are doing it right or you need to modify something for the next year.

 

Tip #4: Ask Advice

Parents and new businesses owners are alike, venturing through new territory. And you could be the one that does it alone, taking the long route, making mistakes and struggling through self-fixing things on your own. Or, you could be the one that reads everything, joins groups, asks questions and hires help when you get overwhelmed.

The second person in that scenario probably gets a lot more done, has less trial and error and gets to network and meet like-minded folks along the way. Don’t be shy, talk about your new venture and ask advice. Sometimes learning from the failures of others is the best way to carve your own route.

Again, congratulations on the new business. Before you know it, your business will be walking and then running, while you sit back proud like a parent.


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