When entrepreneurs finally launch their businesses, accounting is what often causes them the most headaches. Online accounting systems have simplified accounting for company owners who prefer to do the work themselves, but they still frequently worry about compliance with tax codes. These individuals also struggle to find time for accounting work on top of their various other responsibilities. The world of small business accounting can be a complicated one, but entrepreneurs can stay tax-savvy by following these four tips:
1) Keep business and personal accounts separate. Writing account statements can become unnecessarily difficult when entrepreneurs begin to use their business credit cards for personal reasons. By keeping accounts separate, company leaders can better track deductible expenses and avoid wasting valuable time.
2) Don't hesitate to claim home office deductions
All too often, small business owners are deterred from claiming home office deductions, because they worry doing so will lead to an audit. Nonetheless, home office workers may want to take several precautions to keep themselves in good standing.
Work-from-home entrepreneurs should keep their records carefully organized, making it easy to prove to auditors that their deductions are legitimate. Additionally, home offices must be clearly separated from the living area of the house. They should never be dual-function spaces - the presence of a spare bed in an "office room" could spark auditing trouble.
3) Consider hiring a bookkeeper
Small business entrepreneurs are independent people by nature, a quality that leads many to resist enlisting additional accounting assistance. However, hiring a bookkeeper to handle taxes could help company leaders focus their efforts on projects for which they are better suited. The potential for improved productivity and cost savings could be substantial.
Entrepreneur reported that Zalmi Duchman, chief executive of meal-delivery firm The Fresh Diet, made the decision to hire a bookkeeper after five years of handling accounting work independently. Duchman found that his company now saves up to $1,000 in quarterly late fees. The Fresh Diet's bookkeeper sorted through financial records and fixed errors to help the business remain compliant with tax codes.
Hiring a bookkeeper can help entrepreneurs make better small business finance decisions as well. By heeding an accounting professional's expertise, company leaders can gain insight as to how expenditures are affecting their budgets.
"Knowledge is power, even when it comes to the small details," Aaron Sylvan, a serial entrepreneur who runs an e-commerce service firm, told Entrepreneur. "If you don't have a bookkeeper, you're probably not being as strategic as you could be in how you spend your money."
4) Pay attention to deductibles on tech purchases
Section 179 of the U.S. tax code stipulates that expenses made on printers, computers, business-related software and company vehicles are qualified for tax deductibles. With this in mind, entrepreneurs can feel more inclined to make small business technology purchases to improve productivity and operational efficiency.
Businesses must remember to check that the deductible amounts they have recorded are up to date, as Section 179 is revised annually. Firm owners should not buy personal luxuries and attempt to claim them as business purchases. If entrepreneurs have only one car, for example, they will have a difficult time trying to persuade auditors that it is a company vehicle.