8 Ways To Ensure Your Business is Tax Compliant

Know 8 ways to ensure your business is tax compliant; Business owners already understand how important it is to file their taxes

8 Ways To Ensure Your Business is Tax Compliant

Know 8 ways to ensure your business is tax compliant; Business owners already understand how important it is to file their taxes. However, if they want to avoid audits, fines, and jail time, startups, freelancers, and LLC owners have to stay compliant with local, state, and federal taxation regulations. Here’s how your business can do just that.

8 Ways To Ensure Your Business is Tax Compliant

8 Ways To Ensure Your Business is Tax Compliant

Do I have to declare all my business income?

As a rule, you won’t be taxed on any type of business or self-employment income if you make less than $600 a month. However, you still need to declare it on your taxes to ensure your business is tax compliant. These include services paid in cash, sponsorships, or direct income.

For example, there are influencer-specific tax compliance requirements they must meet if they consider social media as more of a business than a hobby. If sponsors, affiliates, or companies are paying you to promote their products, you must track and declare this income.

How to ensure your startup is tax compliant

The IRS defines tax compliance for organizations and individuals as declaring your income and filing your taxes punctually. If you want to protect your finances and reputation, do the following.

1 – Stay up-to-date with tax regulations and laws

The laws revolving around tax compliance change year after year. For example, the IRS won’t accept self-employment income if it’s declared on the 1099-MISC, as they did in the past. Now, freelancers must use 1099-NEC. So you have to stay on top of these regulations to follow the law.

2 – Use software or hire paid tax experts

Small businesses can usually file their taxes using accounting or bookkeeping software, like Quickbooks, but larger enterprises should consult a tax expert. Both solutions can save you time and money that you otherwise would have gone to learn about the nuances of tax law.

3 – Create a separate business bank account

If you keep all of your business expenses in your personal account, you’ll have a hard time keeping track of your finances. However, the IRS is less likely to audit you when you have a separate business account. Plus, you can start building business credit for loans and credit cards.

4 – File your taxes on time with the right documents

According to a Gallup survey, almost 70% of Americans believe corporations aren’t filing their taxes correctly. Corporations are more likely to file late or with the wrong documents. To make sure you file before the deadline, set reminders and gather the right forms ahead of time.

5 – Keep your records updated (Month-to-month)

Some businesses will start updating their books a month before the deadline, but this makes it more likely you’ll miss your filing dates. Instead, always update your ledgers every month (or week if you operate a large organization), so you aren’t rushing. You’ll make fewer mistakes this way.

6 – Apply the right sales tax to products and services

Whether you’re self-employed or an LLC owner, you should keep 20-40% of your income in a separate account for taxes. However, you can reduce a lot of your out-of-pocket tax burden by applying sales taxes on your products and services based on the jurisdiction you’re selling to.

7 – Deduct donations and other such deductions

So, businesses can save a significant amount of money if they apply the correct type of deductions when filing their taxes. For example, large companies often give to charity, whereas freelancers will pay into a 401(k). Both deduction types lower your tax burden, which keeps more money in your pocket.

8 – If you have employees: Pay attention to income tax

As an employer, it’s your responsibility to withhold a portion of your employees’ salary for Social Security and Medicare taxes. If you don’t, you’ll have to pay half of your employee’s tax burden out-of-pocket. So, this could leave you with a hefty bill you may not be able to pay.