Tax season is a headache for anyone, and it often hits small business owners the hardest. Unless you’ve taken careful stock of every single payment, expense, and deduction, you may find yourself buried in receipts in April. If you’re lucky, all goes according to plan, and you’ve paid the right amount each quarter and have no tax issues.
However, if you’re unlucky or struggling with business growth, you could find that you owe more than you have saved—or worse yet, you end up under audit.
When tax issues arise, it’s important to keep a level head and take the necessary steps to stay afloat, even amongst large back payments or audit representation costs. Below are our top recommendations for resolving tax issues.
Take Stock of Your Accounting
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If tax issues arise, it’s important to make sure you’ve done a thorough review of your books. Check your receipts and records twice to make sure you’ve accurately reported the following:
- All business income
- Wages and tips paid to employees
- Product costs
- Office rental and utility costs
- Deductible expenses
Perhaps, all of that goes without saying. But it’s possible you’re missing a few potential deductions that could lower your tax liability. Be sure you also have a thorough account of:
- Materials and supplies – From paper towels to book subscriptions, business supplies are deductible. That’s why it’s so important to keep your receipts or upload them using tax preparation software.
- Business meals – Meals with clients are deductible, but make sure you’re only deducting 50% of the total cost!
- Charitable donations – Depending on your business type, nonprofit donations may be deductible. Make sure you have proof of payment.
Once you’ve maximized your deductions, you may find your tax burden is less than you thought. If not, at least you’re well-prepared in case of an audit!
Consult with a Professional
We know—keeping perfect track of your expenses and deductions is basically another full-time job on top of running your small business.
That’s why it can be so helpful to work with a tax professional when a crisis arises. After all, they have access to specialty tax practice management software specifically designed to simplify the tax process.
If you find that you still owe taxes or penalties, they’ll also be able to help you avoid the problem next year.
Best of all, your payments to tax professionals are tax-deductible!
Prepare to Repay Your Debt
So, you’ve ended the fiscal year owing taxes. Maybe it’s because you underpaid quarterly, or perhaps you simply made more than you expected in the final months of the year.
Either way, unexpected tax expenses can be difficult for startups and small businesses. If you haven’t budgeted for your payment and lack business savings, you may be tempted to dig into your personal bank account or look for other cost-cutting measures.
If this sounds like you, please reconsider. Mixing your personal and business finances can actually complicate your tax situation, and cost-cutting measures might cost you in terms of productivity and growth.
Instead, take a second look at your business debt.
- It’s possible to set up a repayment plan with the IRS over a short-term or long-term period. If this is your first time owing business taxes, you may not be hit with any penalties. Choose a plan that allows you to maintain monthly cash flow.
- If repayments on loans, credit cards, and other business debt are getting you down, consider debt settlement options. You may be paying more than you need to each month. Consolidate your loans to lower your interest or your total minimum payment.
Once you have a clear repayment plan, you’ll begin to see the light at the end of the tunnel.
Look into Government Resources
If your business is cash-strapped in its early stages, you’re not alone. Between startup costs and major adjustments as you get to know tax law, running a business can be expensive, and it takes time to turn a profit.
If you need a little extra help, don’t be afraid to ask for it. The SBA offers microloans to qualifying small businesses. A cash infusion now could help you weather the storm until you’re back in the black.
Planning for Next Year
You know what they say: the only certain things in life are death and taxes. But you shouldn’t let a tax problem spell the death of your small business. Take the necessary financial and legal steps to resolve your problems, and deal with your tax-burden head-on. Avoiding the issue won’t help you, your employees, or your customers.
Once you’ve overcome the hurdle, take the lessons you’ve learned into your accounting practices going forward. And remember, you can, and will, conquer this hurdle.
Featured Photo by Karolina Grabowska from Pexels