Category: Tax Tips

Tips For Small Business Accounting

2/15/2022

Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

For some small business owners, the phrase “tax season” can be unpleasant. But don’t worry– We are here to help! Today, we’ll be sharing some helpful tips for small business accounting.

Determine What Kind of Business You Are

One of the first things you will need to do as a small business owner is determine what type of business entity you are. You must register your business in the state you will be operating in. In South Carolina, businesses can operate as a sole proprietorship, partnership, corporation, or limited liability company (LLC).

A sole proprietorship is the simplest business structure. If you are the only owner of your business, you are automatically a sole proprietorship and there is no need to register with the state. However, you might need local business licenses or permits.
A partnership is similar to a sole proprietorship, but the business has two or more owners. There are two types: general partnerships (GPs) and limited partnerships (LPs). It is the default mode for businesses with multiple owners, so there is no need to register with the state. Each owner is personally liable for the business’s debts. Owners can deduct most business losses on their personal tax returns.
A corporation exists separately from the business’s owners. There are two types: C Corporations and S corporations. There are many more regulations and tax laws that a corporation must comply with. C Corporations are eligible for more deductions than any other business entity. Both C and S corporations are more expensive to create than sole proprietorships or partnerships.
Limited liability companies combine the flexibility of partnerships with the personal liability protection of a corporation. LLCs require registration with the state. You can choose whether you want to be taxed as a partnership or as a corporation.

Deciding your form of business will determine which income tax return form you have to file. For example, all businesses except partnerships must file an annual income tax return. Partnerships should file an information return. The IRS website provides information on business entities, as well as charts to help you determine which type of business you are. We provide small business consulting, so reach out to us if you want to know more!

Preparation and Communication: Hire an Accountant!

Now that you’ve determined your business entity, it’s time to start preparing for tax filing. Preparation is key, whether you are a first-time filer or a tax professional. Many small business owners manage their own bookkeeping, but as your business grows you may find that you need support. You’ll need to find an accountant or bookkeeper that is right for your business. It’s important to make sure your accountant is a good fit and is in tune with your business’s structure and goals. They should do more than just file your taxes. In fact, they should be someone you keep in contact with throughout the year– not just during tax season. As the structure of your business evolves, there will likely be new forms to fill out. Your accountant or bookkeeper should help you track your business’s spending throughout the year. This is vital for the longevity of your business’s success and growth. Think of them as a business partner. Working together with them is going to make the entire process easier for all. As a business owner, you have enough on your plate. Can you manage bookkeeping yourself while still giving your small business the attention it needs? Hoods Tax and Accounting can handle the bookkeeping for you. We also offer payroll services to make things easier for you.

Maintain Neat and Accurate Records

Make sure all records of your spending are easy to access and read. Your small business should invest in basic accounting software. This will help you keep track of your income and expenses and see all of your files in one place. Inadequate record-keeping can cause you to owe more money in the long run, and could cause your business to be denied deductions or credit. There are a variety of easy-to-use softwares out there. Here at Hoods Tax & Accounting, we are experts at QuickBooks! QuickBooks is a software aimed at small to medium-sized businesses. We offer QuickBooks training, so feel free to contact us today to get started!

Be Aware of Deductions You May Qualify For

Tax deductions are expenses that can be deducted from a person or business’s taxable income. There are quite a few tax deductions that small businesses can claim, so it’s important to be knowledgeable of what’s out there and figure out what you may qualify for. There are deductions for business meals, business insurance, legal fees, rent, phone and internet expenses, home office, charitable donations, startup expenses, and more. One deduction that might seem more relevant than ever before is the home office deduction. Since the start of the pandemic, many people have transitioned to working from home. However, not all people who work from home are eligible for this deduction. According to the IRS, employees are not eligible to claim this deduction. Additionally, there must be exclusive use of a portion of the home for conducting business on a regular basis. It’s important to research these different deductions ahead of time and take note of which ones your business may be eligible for. Waiting until the last minute could cause you to miss out on saving money!

Calculate and Understand Startup Costs

To go along with tax deductions, a specific one that you should keep in mind is startup expenses. When your business is brand new, this is especially relevant. You will have expenses such as rent, payroll, utilities, and professional services as well as things like permits, licenses, website creation, logo design, and even business cards. Although starting a business can be pricey, the good news is that some of these costs can be eligible for tax deduction. You should act quickly, though: You’ll need to claim the deduction for the tax year that your business officially opened. If you are interested in this deduction, it’s best to calculate and keep track of your expenses as soon as possible after starting your business.

Separate Business and Personal Expenses

Separating your business and personal expenses can have a range of benefits, including tax advantages. If these two intertwine, it can limit your eligibility for tax deductions. Having your personal expenses tied to your business expenses can also make it more difficult to accurately determine and report your business’s income. You don’t want to sit down and go through receipts to figure out which expenses were personal. If these expenses are not calculated accurately, it can be damaging to your business credit, which is the financial history of your company. Business credit can be used to borrow money, or loans, to purchase products and services. Ideally, this credit should be separate from the business owner’s credit. Getting a separate bank account and credit card for your business can be a step in the right direction. When looking for a bank to set up your business’s account, there are a few things you should think about. First, make sure the bank is conveniently located. Is there a branch close to your business? You’ll want to be able to get there whenever you need to. Next, gather as much information about the bank as possible. What kind of banking fees do they have? Are there fees per transaction? These will need to be factored into your business’s budget.
Conclusion
These are certainly not the only things you must do to start up your business and keep it running smoothly, but they are important first steps in the process! As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!

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