We all know that preparing for tax day is a daunting task. There are certain tips you can follow to make your tax preparation manageable. Here are five of those tips to make the process seamless.
Keep the Two Worlds Apart
As a general rule of thumb, you want to keep any new projects or jobs separate from what you’ve already got going on. You don’t know how successful your new business will be, so play it safe and keep a separate bank account for all of your dealings.
Hiring Employees vs. Subcontractors
Part of tax preparation is making sure that the proper forms are signed. Not only is it crucial to hire those who will make a difference in your company, but you also want to make sure you’re having them fill out the proper paperwork. There are two main forms, the W2 and 1099 for subcontractors.
Employees are those who work scheduled shifts and are paid on payroll, while freelancers come and go as projects are needed. The W2 should be given to the regular shift worker. If you fail to provide the proper paperwork, you could face hefty penalties. Be sure to understand the type of workers you have and which paperwork you need to have on file for each type.
If you read your books carefully, you’ll find there are many shortcuts and tricks that may help you claim deductions. You can get a deduction for your startup’s expenses, such as ordering supplies, buying space, etc. There is a $5,000 limit, so make the most of it.
Taking in an employee is a big decision that usually benefits the employee and lightens the employer’s workload. However, as mentioned earlier, it’s important to make sure all the proper paperwork is filled out on time. Social Security, Medicare, and Medicaid are examples of important programs that the W4 and W3 forms account for. Make sure you are up to speed on what is expected of you regarding these regulated fees.
In your annual tax preparation, you can legally claim depreciation on your businesses’ cars, computers, patents, copyrights, and more. These are all tangible items that could lighten your tax obligation each year something depreciates.
Tax preparation is not the first thing most businesses think of when starting out; however, it is definitely an important factor that could cause a lot of headaches and unnecessary battles if you are not fully informed of what your responsibilities are.