How To Manage Taxes as a Business Owner

Keeping up with your tax obligations is crucial to ensuring the ongoing viability of your enterprise. The IRS is a tough debt collector to escape. 

However, the task can seem more daunting than ever, particularly this year, when PPP loans enter into the equation for many. Knowing what you should do is critical to saving money and avoiding an audit. Here’s how to manage taxes as a business owner. 

Retain the Right Help 

Many business owners run into trouble trying to manage the daunting world of tax preparation by themselves. They purchase software, then grow frustrated when they can’t find the answers they need. In desperation, they get the program to work — but they don’t feel secure about what they submitted to the authorities. 

Free yourself from all that unnecessary stress by hiring the right accounting help. Most business owners fail to recognize how detailed the profession is. Perhaps the ultimate business tax tip is to educate yourself about various designations and what they mean to find the right support:

• Tax attorneys: These professionals have in-depth knowledge of tax law as it applies to your specific business, whether a floral shop or a car dealership. They’re indispensable to have on retainer, as they can ensure all your financial obligations with the IRS and state and local authorities are met. 

• CPAs: These professionals have extensive knowledge of taxes and accounting. They can run your books and manage your biweekly, quarterly and annual filing obligations. Many small businesses employ the services of a dedicated CPA for daily tax matters while referring more complex questions to their attorneys. 

• EAs: EAs are similar to CPAs, only they specialize solely in tax matters, not day-to-day bookkeeping operations. Some of them go the extra mile and are certified to represent clients before the tax court. 

• Bookkeepers: These professionals can be certified or not — but you should look for one who is to protect yourself. Gaining a credential shows dedication to the profession. These individuals manage the daily books but pass on the filing obligations to a tax professional. 

Keep Your Trust Fund Inviolate 

You remain ultimately liable for the tax obligations of your small business, even if you hire a professional. This tip is the ultimate thing to know about taxes as a business owner. If you have employees, you’re responsible for withholding the appropriate income tax from their paychecks and holding it in a trust fund until it comes time to file your quarterly taxes. 

Many business owners get in trouble by dipping into this fund to cover “just one unexpected expense” — then find themselves underwater when the tax bill comes due. You might think your entity type (LLC, S-corp) protects you — but that only safeguards your personal assets against liability from third parties who sue your business. 

However, it doesn’t stop the IRS from holding you accountable for the trust fund recovery penalty if you habitually default on your payment obligations, wracking up thousands in back tax debt. This instrument allows taxing authorities to seize your personal assets if necessary to settle your past due amount. It’s how some unfortunate small-business owners end up losing their homes and vehicles. Set that fund aside and don’t touch it for any reason, no matter how good it may seem at the time. 

Figure Out Your Filing Obligations 

Your business has to make federal tax deposits on an assigned schedule depending on size. These don’t revolve around your payroll but how much tax you generate. Those with enterprises with $50,000 or less in taxes make federal tax deposits every month. Enterprises that exceed this amount must make semi-weekly deposits. 

In addition to federal tax deposit requirements, businesses must also be attentive to state-specific regulations. For instance, in Texas, where state regulations play a crucial role, businesses need to adhere to the Texas sales tax filing obligations. The frequency of these filings may vary based on the size and nature of the enterprise. Navigating both federal deposit schedules and state-specific filing requirements demands careful financial planning to ensure compliance and avoid potential penalties.

If you don’t have employees — or only one or two — you probably make your federal tax deposits each quarter. When you hear people refer to “paying their quarterlies,” they refer to this process. The U.S. has a pay-as-you-go system that demands you hand over tithes as you receive income, not wait until the year-end. 

Make Sales Tax Seamless 

The process of how to handle your business taxes depends on what you do. Each state has different sales tax rules. If you sell your product across borders, you need a system for managing your obligations. 

Fortunately, you can find various software programs designed to keep you compliant. It’s more than worthwhile to send your regular bookkeeper for training on how to keep up, as they’ll likely handle the daily entries and maintenance. Some tax professionals solely devote themselves to this area of practice — it might be worth consulting with a specialist if you do considerable business across state lines. 

How to Manage Your Business Taxes 

Managing your business taxes is one of your most important obligations as an owner. Use these four tips to stay in compliance.

By Ginger Abbot

Ginger Abbot is the Editor-in-Chief and founder of Classrooms.com, a learning publication for college students, career professionals and educators.