Business can be taxing

July 12, 2017 by Dave Ramsey's Entreleadership

Entrepreneurs are a special breed of people. We know how to grow ideas and businesses, land clients, and crank out product. That’s the fun part. Managing the company’s finances? Well, that is often the not-so-fun part. I mean, who wants to balance spreadsheets, fill out quarterly tax forms, and file annual returns when there are customers to serve?

You can’t dodge your financial responsibilities and expect to be successful. Tax Day is just a few weeks away, so read on for a few reminders and a little solid advice from a guy who has been in the business trenches as long as  some of you have been alive.

As business grow, tax burdens grow
When your business is a one-person show, your accounting duties are relatively simple. Basically, you need to keep a separate checking account for your business, and use it for business income and expenses only. You also need to pay yourself a salary from this business account, and deposit 25 percent of your pay into a separate savings account for your quarterly estimated tax payments. Paying your self-employment tax, also known as Medicare and Social Security taxes, when you file your annual tax return is part of the picture, too.

However, as soon as you hire one team member taxes get way more complicated. With an additional team member, you must track your own taxes, manage business income and outgo, calculate payroll, assess federal and state income taxes, and determine federal unemployment taxes.

Are you tired yet? Hope not, because I didn’t even touch on sales taxes for our friends in retail!

Bad money management equals failure
Poor money management in the area of taxes is one of the main reasons businesses fail each year. A recent study by Statistic Brain of small business start-ups showed that half of new businesses shut their doors after just four years. For nearly half of those, the major causes of failure were errors in record keeping and non-payment of taxes.

The IRS is infamous for assessing steep penalties on unpaid taxes. Be diligent with your record keeping, even if someone else is managing your books. Believe me, once my company was large enough for me to hire a professional bookkeeper, I handed off the accounting duties and relied almost solely on the bookkeeper’s report.

As the leader, your time is often better spent concentrating on the day-to-day task of building the business. Relying on an expert to handle the bookkeeping and tax responsibilities is a smart way to make that happen.

Set high standards
If you take the route of hiring a professional business bookkeeper, make sure you follow these guidelines. First, find a competent, trustworthy professional. Take a long look at their past job experience, and call all their references. A good bookkeeper is worth their weight in gold. They will save you time and money – on taxes, especially – because it’s their job to know more about taxes than you do.

Second, remember that as the leader you are ultimately responsible for knowing the true state of your business finances. It is not your accountant’s job to keep watch over your business and alert you to problems. That’s the job of your chief financial officer — just one of the many hats you’ll wear in the early days of your business!

Get to know your pro
You don’t have to hire a full-time bookkeeper or accountant to keep your finances organized. You can outsource your financial tasks to a tax professional who is experienced in handling business accounts. Regardless, you’ll want to work with a pro who has one or both of these licenses:

  • Enrolled Agent: An Enrolled Agent must pass a comprehensive examination that covers business and individual tax laws. They must meet continuing education requirements to maintain their licenses, and they can represent their clients before the IRS if they’re audited.
  • Certified Public Accountant: CPAs undergo extensive training and testing, and must meet ethical and continuing education requirements. Many specialize in business tax preparation and planning. The more complicated your taxes are, the more a CPA can help with strategic advice specific to your situation.

In addition to these licenses, your tax pro should have a reputation for super-serving their clients. The right pro should be dedicated to saving you time and money on your taxes. But the bottom line with small-business tax prep is to be diligent, thorough, and in the loop at all times!

 

* Small business expert Dave Ramsey is CEO of Ramsey Solutions. He has authored numerous best-selling books, including EntreLeadership. The Dave Ramsey Show is heard by 12 million listeners each week on more than 575 radio stations and multiple digital platforms. Follow Dave at entreleadership.com on the web.

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