If you are self-employed or running your own business, you need to take taxes into consideration from the start. When you work for someone else, your employer is responsible for making sure sufficient taxes are withheld, but when you run a small business, you are responsible for making your own tax arrangements and making sure the government gets its money on time. That is why it is so important to incorporate smart tax planning into the day-to-day operations of your business.
Create a folder for all of your business-related expenses, including utility costs, rents and the cost of the supplies used in your business. Having everything in one place will make it a lot easier to figure out your tax liability and help you get the write-offs to which your business is entitled.
Open a separate savings or money market account for the money you set aside for taxes. Look for a high yielding account, but make sure the money is not put at risk. A quality money market fund or savings account at a local bank or credit union is a good choice.
Divert up to 40% of your company's gross receipts to your separate money market fund or savings account. When you run a business you will be subject to the self-employment tax as well as your regular tax rate, so it is important to set enough money aside so that you will have enough money for your taxes.
Buy a quality tax preparation software package, even if you plan to use a certified public accountant to do your business taxes. The cost of a premium tax preparation package such as Tax Cut or Turbo Tax is only about $50-&75, and these packages can help you figure out how much you may owe.
Enter all of the information you know about your business income, including the monthly income from your business, your monthly expenses and any special business exemptions. Use these figures to complete your 1040-ES form, the form used to pay your estimated taxes four times a year.
Complete your 1040-ES form and use it to make your first estimated tax payment. You can make that estimated tax payment from your separate tax savings account, allowing you to use the remainder of your business income to grow your firm. After you have made your first estimated tax payment, the IRS will automatically send you the payment vouchers you need to make the remaining estimated tax payments.
You also can pay your quarterly estimated taxes online. Get a free account at www.eftps.gov.
Items you will need
- Business records
- Sales receipts
- Receipts for supplies, utilities and other business expenses