Tax season is upon us, and many startup owners are wondering what to do about their taxes. It can be hard to keep track of your expenses all year long, but it’s vital if you want accurate tax preparation! This blog post will discuss some costs that you should track for the upcoming tax season.
What are business expenses?
Business expenses are out-of-pocket costs that you incur throughout the year while running your business. Note that there are two types of expenses in a business: costs of goods sold-those associated with producing a product and operating expenses, including salaries, rents, licenses, etc.
What business expense should you track for accurate tax preparation?
During tax preparation, business expenses come in handy as they can help lower the overall tax paid by the business. This is why tracking business expenses is important for accurate tax preparation. Some of the most common business expenses include, but are not limited to:
•Rent or mortgage payments
•Retirement plans
•Depreciation of equipment
•Home office expenses
•Insurance premiums
•Payroll expenses
•Employee benefits
•Rent or mortgage payments
•Interest expense
All the above expenses are tax-deductible. It is important to note that you can only deduct expenses that are ordinary and necessary. This means the payment must have been common for your industry.
What are the non-tax-deductible business expenses?
Not all expenses that a business incurs qualify as tax-deductible. Some of the common non-tax-deductible expenses include:
•Meals and entertainment
•Clothing
•Political contributions
•Legal fees
•Medical costs
•Vehicle registration or inspection fees
How to keep track of business expenses?
Tracking business expenses is a time-consuming task, but it can be done. Some of the methods that a business owner may employ include :
The old-fashioned method
This involves purchasing a cash box to keep all their receipts inside. You should file all your receipts properly to ensure you don’t lose track of which is deductible or not. This approach may seem like an easy solution, but it has its disadvantages. One downside to this strategy is that business owners might spend more time than they should on record-keeping. Another downside is the potential for loss or theft of receipts.
Make a spreadsheet
A business owner can also use a spreadsheet and manually input their expenses into it. This method is suitable because not only will you track your business expenses, but you’ll also get an idea of what type of categories to use for your tax preparation, such as travel costs or equipment fees. This method is easy to implement, and the only downside is that it might be time-consuming if you have a lot of expenses.
Cloud Accounting Software
Cloud accounting software such as Outright can help you track your expenses. You can input their receipts, and the program will do all the work for you when it comes time to file taxes. The only downside is that this method could get costly if you use many business-related services, but it’s still useful because it saves you time.
Using a dedicated credit card
Small businesses can also use a dedicated credit card to track their expenses. You will get all the necessary receipts and input them into an accounting software such as Expensify or Mint. The only disadvantage to this method is that it could be difficult for small business owners with few employees and limited resources who don’t have many transactions per month.
Business Financial Accounts
A business bank account is an excellent option because it’s easier and more convenient for transactions that may be small in value or frequency. Remember to keep all receipts, check stubs, invoices, and other documentation to substantiate small business tax deductions taken on the tax return. This helps to keep everything organized, making sure that business-related expenses are crystal-clear come tax season.
What are the benefits of tracking small business expenses?
Keeping track of your small business expenses can contribute to its success in the future. There are various benefits involved, and these include:
Tax deductions
Business owners can take advantage of tax deductions by tracking expenses carefully. The more you track expenses, the easier it’ll be to file your taxes and increase your chances of receiving money back at the end of the year.
Keeps record-keeping organized
Keeping accurate records is essential for any business that wants to succeed. It allows you to organize your documents to clear everything at the end of the month or financial year. It also allows you to know what expenses to cut down on for-profit maximization.
Establishes a business’s financial position
Business owners need to understand the health of their small businesses, from positive cash flow to increased revenue streams. Tracking expenses is one way that can help them do so by providing insight into how much money comes in vs. what goes out each month or year, whether it’s enough to cover the cost of business expenses or if it needs to be inhibited.
Increases opportunities for growth
Tracking small business expenses gives you a better idea of where your money is going each month and what types of services are most beneficial, given that they’re not too expensive. This can help with moving forward by expanding or growing your business.
Financial responsibility
Staying ahead of all the business allows you to be more disciplined with spending money. It keeps you from being wasteful and encourages you to spend on only what is needed for the company’s success.
Let LBS Tax Help With Your Taxes!
If you’re having trouble managing the financial affairs of your small business and need a tax preparer Chandler ASAP, look no further than LBS Tax. We’re your local source for financial services in bookkeeping, tax preparation, or consulting! Contact us today!