As small business owners we have to be mindful of the fact that we have to prepare our taxes on the business as well our personal filings. As budding entrepreneurs we may not realize that there is a fair chance that we could create tax headaches for ourselves. Since we went into business we may have more forms to fill out that are growing more complex as time goes by because of new laws coming into play in the federal and state tax codes. And it can become difficult to keep abreast of the changes that affect us.
Just think about it. If we have employees we have to consider the new withholding taxes and the sheer volume of work that is involved. And it is not just the work; employees will need explanations as to why their pay stub is different. The employer must file tax Forms 941, Employer’s Quarterly Federal Tax Return, and 940, Employer’s Federal Unemployment Tax Return (FUTA), which address reporting of withholding for social security, Medicare and unemployment, as well as for federal and state income taxes. So it is difficult for the small business owner to keep up with all this information and the changes in the withholding tax laws and rates.
With regard to the business itself, Schedule C, Profit or Loss from Business (sole proprietorship), revealing the sales and expenses of the business, must be completed. Some issues may come up in preparing these; for example, any change in the value of inventories must be calculated and the treatment for the related profits and losses must be addressed. The treatment for such changes can be a tricky situation for the entrepreneur.
If you have an online business and sell to customers out of state, there is another issue which can become problematic. Some states which are short of cash may force companies to collect tax on sales made to their residents even when the company is based elsewhere. Court challenges on this topic leave the requirement in doubt, but if the trend catches on companies would find it harder to comply with the various sets of rules and tax rates.
What is the entrepreneur to do? In the first place it is recommended that a payroll preparation company that serves small businesses be hired to prepare your payroll and file the required withholding taxes and quarterly reports for your business. They are not expensive and the time and energy they can save you makes this task worry-free.
Hiring a small business accountant who has experience in your type of business is also worthwhile. Make sure you interview them for their abilities and your needs. While the fees they charge are an important consideration, you may want to retain them instead of getting billed for every question you may have. An accounting firm should have a retainer, like $150 a month, to cover payroll, tax returns and other filings. In this way you will be able to develop a relationship with the accountant and someone you can lean on. Nickel and dime billings for phone conversations would be nonexistent.
An experienced small business accountant who understands your business can help you grow your business. If he is asking the right questions he would address your goals and where you want to be in the next couple of years. He can help you shape your life.