13 small business tax tips every business should be using

Tax season is an especially stressful time for small business owners. If you procrastinate on tax season preparation, it might be time to rethink your strategy. Preparing your books for tax season sooner rather than later relieves tax-related pressure and reveals opportunities for the year ahead. It’ll also ensure you’re maximizing your tax breaks.

We’ve found 13 small business tax tips that will help reduce stress come tax time: 

1. Reconcile to source documents

2. Organize your chart of accounts

3. Separate personal and business accounts

4. Make use of tax breaks and deductions

5. Regularly review your financials

6. Record transactions promptly

7. Automate where you can

8. Keep good records

9. Seek expert advice

10. Prioritize the balance sheet

11. Focus on running your business

12. Keep receipts for all transactions

13. Utilize online payments

Let’s dig deeper into the best practices for getting your books ready for tax season, avoiding common mistakes, and maximizing refunds.

1. Reconcile to source documents

As a small business owner, you’re responsible for accurately reporting your business income and expenses on your tax return. One of the most important tips for tax preparation is to reconcile your books to your source documents, such as: 

• Business bank account statements
• Credit card statements
• Receipts
• Invoices

Reconciliation involves using source documents to ensure:

1. Each transaction in your accounting software is accurate and complete
2. There are no duplicate entries

By reconciling your financial transactions to your source documents, you can ensure that your business expenses and income are reported correctly, which can help you minimize your tax liability and avoid potential penalties from the IRS.

2. Organize your chart of accounts

Another key aspect of making tax time as easy as possible is maintaining a useful chart of accounts. The chart of accounts lists all the categories and subcategories of transactions for your transactions.

When creating your chart of accounts, consider your business's specific needs. For example, if you're a service-based business, you might have different categories than a retail business. Some common account categories that may be useful for most small businesses include:

• Income: Sales, revenue, and interest income 
• Expenses: Rent, utilities, and office supplies
• Assets: Equipment, vehicles, and patents
• Liabilities: Loans and accounts payable 

By organizing your chart of accounts, you can easily categorize and track all your transactions—saving you time come tax time.

3. Separate personal and business accounts

One of the easiest mistakes to make as a small business owner is to mix personal and business finances. Commingling the two can lead to confusion and make it more difficult to track your business finances accurately.

Consider opening a separate business bank account and credit card for your business expenses—and only using those accounts for business purposes.

When personal and business expenses are combined, it becomes challenging to track your business's financial health and file your taxes accurately. It can also be difficult to track which expenses are deductible and which are not.

4. Make use of tax breaks and deductions

When it comes to tax time, an easy way to save money is to ensure you take advantage of all the tax breaks and deductions available to your business. Understanding and utilizing these tax benefits can reduce your taxable income.

Some of the most common tax breaks and deductions for small business owners include:

• Business expenses: Any ordinary and necessary business expenses incurred during the year are deductible, such as office supplies, rent, utilities, and travel expenses.
• Home office deduction: If you work from home, you may be eligible for a home office deduction. You can deduct a portion of your home expenses, such as rent, utilities, and maintenance, based on the percentage of your home used for your business.
• Retirement plans: Contributions to a qualified retirement plan, such as a 401(k) or IRA, are tax-deductible and can reduce your taxable income.
• Health insurance: If you are self-employed, you may be able to deduct the cost of health insurance premiums for yourself, your spouse, and your dependents.

Understanding and utilizing tax breaks and deductions can help you save on your tax bill so you can keep more of your hard-earned money.

5. Regularly review your financials

As a small business owner, it's essential to keep a close eye on your finances. You need to know your income, expenses, profits, and losses to make informed decisions and create a tax strategy.

Your financial statements, including your profit and loss statement, balance sheet, and cash flow statement, are like a report card for your business. Reviewing your financial statements regularly lets you catch potential problems early and make the necessary adjustments before they become more significant issues.

6. Record transactions promptly

As a small business owner, it's essential to keep your financial records up-to-date and accurate. This means recording transactions promptly and regularly. Whether it's a purchase, sale, or expense, every transaction needs proper recording to ensure your finances are accurate and reliable.

The longer you wait to file a transaction, the more likely you are to forget important details. If you're not keeping accurate records, you may miss out on potential tax deductions, overpay taxes, or even face legal consequences.

With accounting software that connects to your bank feed, such as QuickBooks Online, recording your income and expenses is automatic and near instantaneous. It can capture everything for you because it’s automatically connected to your bank.

7. Automate where you can 

One of the keys to running a successful small business is learning to be efficient with your time. As the owner, you have a lot of responsibilities on your plate, and it can be easy to get bogged down in time-consuming administrative tasks that take you away from more important business activities.

That's where automation comes in. Automated accounting can be a game-changer for small business owners, allowing you to streamline your processes and save valuable time that you can use for other important tasks.

Automated accounting for bookkeeping will keep your books up-to-date and ready for tax time.

8. Keep good records

As a small business owner, keeping accurate records is crucial to ensuring you can file your taxes correctly and avoid any potential tax audits or penalties. Also, by keeping detailed records of your business expenses, you can maximize your deductions and reduce your taxable income.

In addition to tracking income and expenses, you’ll want to keep accurate records of any assets or inventory your business may have. This can include tracking the value of any equipment or property and maintaining an inventory of any products you sell.

Beyond just staying compliant with the tax code, keeping good records can also help you make more informed business decisions.

9. Seek expert advice

As a small business owner, it's important to recognize when it's time to seek expert advice. While you may be an expert in your industry, you likely don't have the same level of expertise around tax laws.

The tax code is constantly changing, and keeping up with the latest regulations and requirements can be difficult. A tax professional can help you navigate these complexities and ensure your tax return is accurate and compliant with all laws and regulations.

Even if you feel confident in your knowledge and abilities, using a CPA or ‌bookkeeper can provide valuable insights—tax or otherwise.

10. Prioritize the balance sheet

It’s easy to get caught up in day-to-day operations and focus solely on maximizing profits. However, it's important to remember that a healthy balance sheet is just as important as your profit and loss (P&L) statement. 

Balance sheet items can often be overlooked. Income and expenses tend to appear on your bank statements—making them hard to miss. But don’t forget to account for balance sheet accounts when filing taxes, such as assets and loans.

11. Focus on running your business

Running a small business is no easy feat, and there are many tasks to juggle daily. From managing employees to handling customer inquiries, finding time to focus on the bigger picture can be difficult.

To ensure that your business stays on track financially, it's crucial to focus on running it. This means you need to prioritize your tasks and delegate responsibilities when necessary. While you may want to handle everything yourself, this can lead to burnout and a lack of productivity.

Instead, consider hiring employees or outsourcing tasks to free up your time and avoid mistakes when tax time comes.

12. Keep receipts for all transactions

One of the most important tasks for business owners is to track expenses. This ensures you have all the documentation you need if you are audited by the IRS. One of the simplest and most effective ways to keep track of your business expenses is to keep receipts for all transactions. 

Whether a cup of coffee on a business trip or a large equipment purchase, every expense should be documented to claim the appropriate tax deductions and reduce your taxable income.

13. Utilize online payments

One of the most important aspects of managing your finances is accepting and tracking customer payments. However, managing payments does not have to be a hassle. With the advent of technology, it is now easier than ever to receive payments from customers using online payment methods.

Online payment platforms can help with tracking payments and reducing errors. Many online payment platforms also provide detailed transaction records, streamlining tax time.

Find peace of mind come tax time 

Managing small business taxes can be overwhelming, but some strategies can help alleviate the stress. By keeping accurate records throughout the year and utilizing tools like accounting software, small business owners can have a clearer picture of their tax liability come tax time.

Disclaimers

*QuickBooks Live Tax, powered by TurboTax, is an integrated service available with a QuickBooks Online subscription. Additional terms, conditions and limitations apply. Pay when you file.

**QuickBooks Live Bookkeeping Guided Setup is a one-time virtual session with a Live Bookkeeper. Available to new QuickBooks Online Simple Start, Essentials, Plus, or Advanced subscribers who are within their first 30 days of their subscription. The QuickBooks Live Setup service includes instructions on how to set up your chart of accounts, customize invoices, set up reminders, and connect bank accounts and credit cards. QuickBooks Live Setup does not include Payroll setup or services. Your bookkeeper will only guide you through the setup of your QuickBooks Online account, and cannot set it up on your behalf.

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