#smallbusinessweek Tax Tips for Entrepreneurs
By Caroline Hollis, Head of Square Payroll
It’s May, your taxes are paid, and maybe you’re busy thinking about what to spend your refund on this year. You’re certainly not thinking about paying next year’s taxes. Maybe you should be—it’s never too early for small businesses to start prepping for next tax season.
This is especially true because most small businesses don’t have access to accounting teams to manage their books like larger operations do. According to data from the IRS, billions in penalties are issued each year, many of which relate to employment taxes. Because of this, small businesses with thinner margins would be well-served to pay close attention to their tax liabilities, especially since an unexpected penalty would likely have a greater effect than it would on a larger business.
While filing deadlines vary depending on the type and size of your business, tax season is still a great time to get your ducks in a row and re-evaluate your business’ tax strategy. Whether you’re a sole proprietor selling handcrafted goods, a growing neighborhood coffee shop with a few employees or a bakery that is opening up your third location, there are some basic tips that will help stay on top of your taxes—regardless of where you are in your business’s life-cycle.
One of the most important (if not the most important) facet of getting your business ready for tax time is also the most obvious—staying organized! While it may be easy to handle your bookkeeping on your own when you’re smaller, some tasks just get more complicated as your business grows. It gets far more difficult to keep track of what’s going in, what’s going out and what you owe in taxes!
One way to keep everything straight is to keep your records in one place. That means if you’re more of the manual type, be sure to keep all your tax reports in a specific file, so when it comes time to do your taxes, you won’t have to hunt down hundreds of forms and printed excel spreadsheets. If you’re using a service like Square, keeping everything in one place is simple because all of our products can be managed from one single dashboard with a single password and login. This way, all the reports you need can be downloaded from one location.
Know the Rules of tax
Given the rules, regulations, and tax implications that go along with paying a team, payroll can be especially daunting for new small business owners as there is immense pressure to ensure that everything is handled on-time and correctly. For example, Dan Floyd owns Dan Good Cookies, a bakery based in Livermore, California. As his business expanded, he needed to hire a few helping hands to provide support at local farmers markets. When he started researching the payroll process he was surprised at the amount of work that goes into it. “I had no idea how to do payroll or file anything. There’s no handbook that says what we needed to get started and how to set everything up.”
Critical operations like running payroll often have a steep learning curve and given the complex regulatory environments that accompany the process, it’s easy to make expensive mistakes. Simply put, learning the intricacies of tax code associated with payroll is a gargantuan task for small business owners—especially when they are more worried about keeping the lights on.
That’s exactly why many small business owners like Dan are turning to automated tools like Square Payroll to simplify the process. “You just add an employee, they get the invitation, add their information and you’re done. It was just super easy,” he said. One of the biggest benefits of using a service like [this] is that come tax time, everything has already been taken care of for you. Throughout the year Square Payroll automatically calculates and withholds your payroll taxes, and it makes tax filings and payments to the relevant agencies on your behalf. At year-end we mail W-2 forms to your team and to tax agencies, and we even file new hire forms on your behalf.
Be on Time
This one sounds simple in theory, but with a million things on your to-do list, varying filing deadlines and an often confusing submission process, it’s easier than you would expect to fall behind on your taxes. I recommend putting the pertinent deadlines for all the different taxes you owe on the calendar you use most. That way it will be a visible reminder to take care of that task. Include both federal and state deadlines when you put these reminders on your calendar.
If you follow these tax tips, your small business will be more prepared when it comes time to file this year.
Caroline Hollis is Head of Payroll for Square.