Managing taxes is a crucial aspect of running a successful business. However, tax laws can be complex and overwhelming for business owners, and filing taxes can be time-consuming and stressful—needless to say, having a definitive guide to managing your business taxes is essential.
This guide will help business owners like you be tax time-ready by providing you with essential information on tax preparation, compliance, and planning. It will also cover different types of taxes and ways to calculate, record, and remit them. Furthermore, this guide will provide you with practical tips and best practices to stay organized and avoid costly mistakes during tax season. Let’s begin!
Different Kinds of Business Taxes
You’ll be concerned with two basic types of business taxes. Income taxes (based on business income and separate from the taxes you pay on your personal income), and sales taxes. When applicable, you must include sales taxes in the amount your customers pay.
Income Tax Explained
Income tax is a tax that a person or entity pays to the government, which is based on their income or profits earned from various sources such as wages, business, investments, or capital gains.
The tax rate often varies according to the taxpayer’s income level, though different countries have their own laws regarding income tax. As a business owner, you must declare your yearly gross income, inform the tax bureau by accomplishing an income tax form, and remit the due amount on time.
Sales Taxes in a Nutshell
Sales tax is a tax levied by the government on the sale of goods or services. It is typically calculated as a percentage of the sale price and collected by the seller on behalf of the government.
The amount of sales tax varies by jurisdiction, as different states or local governments may set different tax rates. Therefore, when you grow your business, you must be updated with the latest sales tax changes, especially in areas where your target customers are. Ultimately, the burden of sales tax falls on the consumer, as it is included in the final price of the goods or services purchased.
Ways To Make Taxes Manageable
In handling taxes, there are plenty of details you should remember. Taxes are complicated, so it’s easy to feel overwhelmed at times. However, here are some ways that can help you do your taxes right!
Efficient Bookkeeping, Accounting, and Taxes
Begin by putting your bookkeeping and accounting in place. Bookkeeping is the task of tracking and organizing all your financial business transactions. When your income and expenses are organized, it is easier to compute your taxable income. Set your bookkeeping and accounting up as soon as you launch your business to avoid backtracking records when tax season nears.
Entrust your books to a qualified bookkeeper and accountant. The bookkeeper will handle data management, while the accountant will assist you in preparing your income tax statements.
Financial Management and Tax Software
You can invest in bookkeeping, accounting, and tax software to make your bookkeeper and accountant more efficient. The bookkeeping and accounting software will be the tools they’ll use to store and categorize financial data. The accountant will help you make sense of the numbers by generating important accounting reports. QuickBooks, Xero, Sage50 cloud, and FreshBooks are just some of the bookkeeping and accounting software you can rely on.
Meanwhile, you can invest in software to ensure that the taxes you calculate, collect, and remit are all correct. TaxJar, HelloTax, Taxify, and Taxomate are some tools you can check. These tools have a system that automatically updates according to the latest sales tax rules in various states and provinces. Because of this, you can calculate and charge the correct amount each time.
Rely on Ecommerce Platform Programs
Some ecommerce platforms like Amazon and Shopify know that sales taxes are a complex task for sellers to handle. Each has a way of giving a hand to sellers like you.
Amazon has the Marketplace Tax Collection to comply with the Marketplace Facilitator Law. The law compels third-party sellers like Amazon to calculate, collect, and remit taxes for the products sold on their platform. Meanwhile, Shopify allows you to add sales taxes upon customer checkout, but they do not collect and remit taxes on your behalf.
Despite the complexity of taxes, you’ll still have all the data you need available on ecommerce platforms, tax tools, and bookkeeping and accounting software. In short, you have the numbers to do tax planning.
Tax planning is when businesses plan their finances to get the lowest tax possible. Tax planning begins by looking at the past year’s tax data and checking which taxable income and expenses can still be optimized to lower taxes. Just make sure that the ways you use to lower your taxes are legal to avoid repercussions later.
Get Assistance From Experts
Tax management isn’t an easy task. Income tax computation is complicated enough as it entails tracking your income for the entire year, and sales taxes make the responsibility even more complex because of its sensitivity to change.
For business owners like you who already have a lot of things on your plate, let professionals manage your business’s tax. These experts will be the ones to utilize the bookkeeping, accounting, and tax software you have. They will do bookkeeping and accounting for you, making tax computation easier. They’ll stay updated on the latest changes in sales tax laws to ensure that you are charging, collecting, and remitting the correct sales tax each time.
Managing business taxes can be daunting, but it is crucial for the success of any venture. Therefore, you must try your best to understand it no matter how difficult it is. Though you may think you can handle it yourself,do not hesitate to ask for assistance from experts and invest in reliable tools when needed.
We hope this guide has helped you know which taxes you should be concerned about as a business owner and how to make the task more manageable. Try our tested tips above, and see how they work for you!