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The UPS Store Small Business Blog
  • 21 April 2023
  • Public Relations

The Ultimate Guide to Small Business Tax Planning: Tips, Strategies and Essentials

You started your small business because you loved doing something. And unless you’re a tax advisor, that something was probably not doing your business taxes. 

However, while filing and paying taxes on your business income may seem stressful and confusing at first, doing it successfully can be a lot easier than you think. And by learning the right business tax strategies and essentials, you can get back quickly to the fun parts of running your small business.


Understanding Small Business Taxes

As an individual, you’re already familiar with filing personal income taxes.

However, as a small business owner, you’ve probably discovered that tax planning and filing business taxes can be a whole different matter. For instance, if you have employees, this brings its own set of tax implications.

Plus, there are several different types of taxes that you are responsible for paying as a business owner. And all of this has to be done while you’re running your small business and keeping your customers happy.

That’s why successful small business tax planning is about minimizing the impact of these business taxes on both your taxable income and your time—both of which you can more profitably spend on generating even more income for your business.

Different Types of Taxes

Let’s start by quickly explaining the five general types of business taxes. This way you’ll have a better idea of how (and whether) each tax applies to your small business.

Income Taxes

We’re guessing you know this one. This is a tax on the taxable income that your business is generating. All businesses, except partnerships, must file an annual income tax return. But as an added wrinkle, your business income taxes must be paid throughout the year as you earn or receive income, usually through withholding.

Estimated Taxes

Expecting to owe more than $1,000 on your return? Then it’s important to know and follow the tax year’s quarterly schedule. Keep in mind that these quarterly estimated tax payments often need to be paid on both a federal and state level.

Small businesses that have relatively predictable income can estimate the tax owed by calculating a year’s worth of both income and deductions. From here, determine the total amount of taxes owed and then divide this number into four even payments.

Self-Employment Taxes

Self-employment tax is a Social Security and Medicare tax paid by individuals who work for themselves. It’s similar to the Social Security and Medicare taxes paid by most wage earners, and your payments provide you with retirement, disability, survivor and Medicare benefits.

Employment Taxes

When you have employees, you also have certain employment tax responsibilities that you must pay and forms you must file. These include payroll taxes such as Social Security and Medicare taxes, the federal income tax and the Federal Unemployment (FUTA) Tax.

Excise Tax

Finally, there are the taxes you must pay if your business makes or sells certain products, uses specific equipment, facilities or products and/or receives payment for certain services. These often include environmental taxes, fuel taxes and, to take just one example, taxes on the first retail sale of heavy trucks, trailers and tractors.

To learn much more about the many types of excise taxes and all of the other business taxes, visitthis IRS Explainer Page for detailed information straight from the source.

Tax Deductions and Credits Available for Small Businesses

Okay, that was a lot, but there is good news when it comes to taxes. As a small business owner, you may be eligible for tax benefits such as qualified business income deductions, tax savings and credits on your taxes.

For instance, you can deduct many business expenses, such as business property rent, auto expenses, employee salaries and office furniture. There’s even a home office deduction. And that’s just the start. To learn more, check out the full list of tax deductions small businesses can take advantage of.

Tax Planning Strategies for Small Businesses

Most business owners are too caught up in the day-to-day grind of running their business to think about next year’s taxes. But here’s exactly why you should.

Not leaving your tax planning to the last minute can save you from costly filing errors. Having a tax plan also allows you to identify tax planning strategies that can reduce your overall tax liabilities. Planning ahead and taking advantage of the tax code, allowable deductions, tax credits and other strategies can save you money that you can reinvest in the growth of your small business.

Tax Tools

A quick word of advice: don’t try to tackle your business taxes all by yourself. Instead, save yourself the headache and the extra hours by leveraging easy to access software designed to empower small businesses when it comes to tax season and tax savings.

For starters, popular online software fromTurboTax orH&R Block can point you in the right direction. And, of course, hiring a dedicated tax professional can make all the difference when it comes to making sure that you’re meeting all of your tax responsibilities while securing significant tax savings.

The key here is to get the help you need, even if it’s just a nudge in the right direction. You may find it helpful to compare leading tax software vendors that can help you secure significant tax savings.

Tips and Strategies for Tax Planning

In addition to the tax planning tools mentioned above, there are several other smart ways you can be better prepared when tax season comes along.

Maintain an Expense Sheet

We’ve all been there. It’s tax time, and you don’t remember (or have) all the numbers you need.

To give yourself a simple, accurate idea about your business expenses, such as purchases, donations, mileage and more, it helps to create an expense sheet and maintain it throughout the year.

Keep Your Calendar Up to Date

The last thing you want is for Tax Day to sneak up on you.

And if you are a small business owner, that doesn’t just mean the April 15 main tax filing date, but also the quarterly deadlines for paying estimated taxes. So put them on your calendar. That way you won’t miss an important tax filing deadline.

Stay Organized

Most importantly, save all of your small business paperwork to keep track of your overall tax liability, especially if you plan to make shipments overseas. This includes paid bills, invoices, payroll documents, sales receipts, canceled checks and deposit slips.

You should keep them in one safe place and in an orderly fashion. For instance, organize them by year and type of income or expense.

To help keep your documentation organized, head to The UPS Store® nearest you to ensure that you have copies of your tax forms just in case. Additionally, The UPS Store can help you shred unnecessary paperwork or documentation you no longer need on hand, in addition to helping ship your taxes while providing you with a trackable and dated receipt that can come in handy. 

Having all the documentation close at hand will make filing your business tax return a whole lot easier.

Tax Filing and Compliance for Small Businesses

The most important thing to remember about your small business taxes is to file them correctly and on time. Everything else starts from there. Here are a few things you should keep in mind:

Consequences of Noncompliance with Tax Laws

Not paying your taxes can result in serious penalties, including:

  • Financial penalties: These may include fines, demands for back taxes and interest payments, as well as other costs.
  • Audits: An audit of your business’ processes and financials can cost you both money and time you should be spending on running your business.
  • Closing your doors: Your business may be forced to suspend operations or stop them altogether.
  • Damaged reputation: As word gets out about your noncompliance, lenders can stop lending and customers may stop coming.
  • Imprisonment: Yikes! Noncompliance can lead to civil or criminal prosecution if your personal actions are ruled unlawful or negligent.

How to Avoid Penalties

Of course, not all noncompliance happens through intentional neglect. Most of the time, failing to meet your business tax obligations is because of unintentional tax errors, such as:

  • Underpaying estimated taxes: If you expect to owe tax of $1,000 or more when your return is filed, you should make estimated tax payments.
  • Failing to deposit employment taxes: You must deposit taxes you withhold from any employee paychecks, plus your share of those taxes, through electronic fund transfers. If those taxes are not deposited correctly and on time, you may be charged a penalty.
  • Filing taxes late: Just like your individual returns, business tax returns must be filed on time. Even one day late can result in penalties.
  • Not separating business and personal expenses: While tempting to use one credit card for all expenses, doing so can complicate separating business expenses from personal ones. And this could cause errors and problems if you or your business are ever audited.

Working with Tax Professionals

If you’ve read this far, you may be thinking, “This doesn’t seem too bad!”

On the other hand, working with a qualified tax professional may seem like the right call right about now. If that’s where your head is at, here are a few more reasons you might want to secure professional advice.

Benefits of Working with a Tax Professional

Regardless of business entity or business structure, from a sole proprietorship to a limited liability company to a C corporation, taxes are owed and must be paid. A tax professional, like a financial advisor who understands tax law, can help your business navigate the tax code while taking advantage of tax deductions that can lower your overall tax burden. Working with financial advisors not only helps you prepare for the current tax year but can help set you up for success in future tax years. But how do you get started?

Three Tips for Finding and Hiring a Qualified Tax Professional

While there are a plethora of ways to find a tax professional, here are a few tactics and strategies we recommend when making your choice.

Find Someone You Can Trust

Reliability is key. Ultimately, this professional should be focused on your business, helping in areas like saving money, identifying eligible expenses and offering reliable advice. Here are a few indicators you’ve found the pro that’s right for you:

  • They teach and explain to you how they are organizing and filing your business taxes, so that you understand the process each step of the way
  • Their rate isn’t either astronomically high or suspiciously low.
  • They have good training and obvious experiencewith filing small business taxes. 
  • They are members of professional organizations, such as the National Association of Tax Professionals, the National Association of Enrolled Agents, the American Institute of Certified Public Accountants or the American Academy of Attorney CPAs.

One final note is to stay away from a tax advisor who doesn’t offer e-file.

The IRS requires any paid preparer who does more than 11 returns for clients to file electronically via the IRS’s e-file system. If your tax preparer doesn’t, it may be a sign that person doesn’t file many business tax returns.

Read Reviews

Some solid places to search for trustworthy reviews of tax planning professionals, When you’re reading reviews, make sure to look for specific examples of how a tax professional or firm was able to help a small business.

Ask Your Network or Other Small Business Owners

While every business owner is different, nearly every business owes taxes. Reach out to your network for recommendations. In the end, word of mouth is still the most reliable gauge of a tax professional’s abilities and credibility. Your fellow business owners are your strongest referral resource.

While we are not tax experts, we do know that “nothing is certain in life except death and taxes.”

As a small business owner, paying taxes is as much a part of doing business as serving customers, ordering supplies and hiring employees.

Successfully navigating these business tax responsibilities requires smart, year long planning and a consistent understanding of what you need to do. Don’t be afraid to reach out for advice from your fellow small business owners and even qualified tax planning professionals. While small business tax planning can be confusing at first, once you have the hang of it, you can quickly get back to doing what you love—running your small business.

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