In today’s dynamic business landscape, running a business is no easy feat. Besides making money, you have to worry about marketing, recruitment, and, most importantly, compliance. You have to ensure the business is up to date with tax-related obligations. After all, any instance of non-compliance can lead to IRS audits, legal trouble, and hefty penalties.
Tax management can be pretty complex; companies tend to slip up in a few particular areas. Some entrepreneurs miss out on deductibles and overpay taxes, while others face trouble with calculations. Being aware of these pitfalls can go a long way toward ensuring compliance with relevant tax laws and regulations. You can optimize tax calculations and track deductibles through savvy applications. Likewise, you can set up a separate sales tax section to avoid mixing up taxes.
However, if you are unfamiliar with the taxation world, have a look below. Here are five tips to ensure your business is tax compliant.
1. Assess your tax obligation
The United States of America has a progressive tax system. That means, people with higher income are subject to a higher tax rate, and individuals with low income have to pay lower taxes. However, this concept doesn’t apply to corporate taxes. Every company is liable to pay a flat tax rate of 21% on annual profits. Therefore, you have to deduct 21% from profit after interest to calculate the net profit.
Moreover, you also have to fulfill employees’ tax obligations. Depending on their income brackets, you can account for social security and Medicare taxes directly from payroll. However, if you are not good with numbers, brush up on your accounting and actuarial skills to ensure accurate calculations. You can take a few short courses or opt for a master of accountancy online to better understand calculations. In addition to fulfilling tax obligations, you will learn about deductibles, tax credits, and compliance policies.
2. Track all deductibles
Usually, business owners prefer tracking expenses at the year-end. The longer you wait, the more chaotic will be tax filing, resulting in non-compliance. To ensure you are on top of everything, track all tax deductibles beforehand. Whether you are adding depreciation on motor vehicles or listing travel expenses – create a separate list for tax-deductible expenses. Additionally, categorize the list by separating expenses that are 100% deductible.
You can integrate expense tracking solutions to keep tabs on every business cost. You can also connect the application with your business bank account for automatic record-keeping. Besides this, make correct declarations. There is no harm in maximizing deductibles but don’t end up making dubious tax claims. The IRS cross-checks every piece of information, and if any detail doesn’t match, you can land yourself in hot waters.
3. Set up sales taxation
Alongside income and corporate tax, retail companies have to account for sales taxes on products and services. And collecting sales tax is super complicated because rates vary from state to state. Firstly, oversee whether all products you sell are taxable or not. Most items such as makeup, home essentials, toothpaste, and furniture are taxable, but there are a few tax-exempt products. You can’t charge tax on food items, textbooks, medications, and clothing. Hence, ensure you are complying with it.
Moreover, you have to ensure compliance while collecting taxes from customers. If you are selling on digital platforms, establish sales tax collection as part of the interface. You can mention prices are exclusive of taxes and show the amount of tax charged on checkout. To better understand how sales tax works, consider learning the ropes. You can complete an online LLM tax program to understand the tax world inside out. Besides assisting with sales tax, you will learn to optimize calculations and take advantage of tax credits.
4. Keep up with state filing requirements
Although annual tax filing requirements vary from business to business, ensure you are fulfilling the standard requirements. Have a look below.
- Some states require an annual report and biennial statement with tax returns. Hence, prepare everything beforehand to avoid missing the filing deadline.
- Many states charge franchise taxes for limited liability companies (LLC) that operate outside the border. However, the formula and rates vary by state.
- Have you made any changes to the company? If so, you have to submit Articles of Amendment to the IRS. It includes your company’s address, name, new shares, membership, and essential business details.
- Prepare initial reports because many states ask for this report after incorporation.
- Pay the statement filing fees promptly and make sure it accompanies the annual report.
- Lastly, the Affordable Care Act requires businesses with more than 50 employees to report to IRS. Only then will they qualify for health coverage.
You have to keep up with all these state requirements to ensure compliance and fulfill your tax obligations.
5. Leverage tax compliance applications
Today, technology is fostering every business operation, and tax compliance is no different. Innovative tax compliance applications provide organizations with accurate federal and local calculations. They automate taxation form filing and reporting, ensuring optimal compliance with regulatory bodies. These apps also help organizations stay apprised of regulatory changes across income, employment, sales, and excise taxes.
Beyond this, tax compliance software can manage various other tax-related tasks. You can apply for exemption certificates and process returns with jurisdictional compliance. Likewise, it facilitates tax data analytics and audit reporting, allowing owners to streamline financial management. Additionally, the software supports sales tax compliance and custom tax management for international sales. Precisely, employing such savvy tools will ensure you are up-to-date with all tax obligations.
As crucial as it is to pay taxes, ensuring compliance with the regulatory bodies is equally essential. Any discrepancies in tax calculations and reporting can lead to hefty fines by the IRS. Therefore, every business owner should stay on top of compliance standards. You can keep up with the state’s filing requirements, learn about your tax obligations, and track deductibles proactively. These small integrations can improve compliance, keeping your business away from trouble.
How to Protect Yourself from Phishing Emails
In 2019, one of the executives at Microsoft received an email which appeared to be coming from one of the…
7 Tips on Choosing Drones Online for New Users
The drones industry appeared out of nowhere as if you didn’t even hear them flying up behind you! Well, in…