Taxes. That’s one word every business owner cringes at. Not only does it mean paying money, but it often goes hand-in-hand with additional stress. For many, April 15 is the big deadline for tax payments. However, there are preparations that need to be completed throughout the year.
This fact surprises people at times. Lots of small business owners – especially when they first start out – believe taxes only need to be dealt with in April. This is incorrect. Certain tasks are weekly, while others are monthly. If you’re unsure how best to proceed, it might be worthwhile contacting an expert on tax planning for small businesses.
But you’ll also obtain a brief understanding by reading the points below:
1. Perform Weekly Bookkeeping Routines
If you want control, weekly bookkeeping is a must. This ensures you stay on top of your ledger. Not doing so could result in costly underpayment penalties, typically due to late filings and inaccurate submissions. You might believe reconstructed records would be enough if the IRS decided to audit your business, but that’s not the case.
In fact weekly bookkeeping is essential in such a scenario. This guarantees all receipts and transaction logs are organized for quick verification.
Four key habits are needed to complete weekly bookkeeping: automate and capture, categorize transactions, reconcile accounts, and stay on top of cash flow. While most are self-explanatory, the first means syncing bank accounts to cloud accounting software and photographing receipts to upload.
2. Execute Monthly Payroll and Sales Tax Compliance
Payroll and sales tax compliance must be completed monthly. Again, doing so ensures you avoid financial penalties. However, monthly execution of these obligations prevents massive, unmanageable tax liabilities from accumulating. Your business will need to account for the true cost of employees. It’ll also need to properly segregate collected sales taxes from operational cash.
Monthly payroll requires calculating gross wages, withholding federal and state income taxes, and paying employer payroll taxes. It is possible to automate these steps using payroll platforms. This automatically processes deductions and tax filings.
For monthly sales tax, the “economic nexus” must be determined. You do this by tracking sales volume and transaction counts across states. This helps you identify when you exceed state thresholds. Before collecting tax, you will need to register for a sales tax permit through your specific State Department of Revenue.
3. Calculate and Pay Quarterly Estimated Taxes
Depending on the size of your business, you might have to pay in quarterly installments. This is likely if you expect to owe $1,000 or more in taxes. The quarterly payments are expected on:
- Quarter 1: April 15
- Quarter 2: June 15
- Quarter 3: September 15
- Quarter 4: January 15 (of the following year)
This is necessary to avoid penalties, by-pass massive end-of-year tax bills, and maintain legal compliance. A giant lump-sum payment could shock you and cause issues for your business, so smaller payments should be preferred here. The US’s “pay-as-you-go” tax system helps with this.
To conclude, taxes can be stressful, even more so if left to the last minute. Fortunately, you can ease the burden by preparing throughout the year. Do this by using the three tasks detailed above.
