A Few Basics of Small Business Tax Accounting
Small business accounting systems are a bit different than the tax accounting systems of bigger corporations. In small businesses generally manual systems are used in order to record and summarize all the transactions that the business is involved in. For instance the operations like receipts, disbursements, equipment depreciation, accrued taxes as well as payrolls. All these summaries are required to complete the tax filings, as per the rules of the IRS. These rules are applicable to all the organizations no matter whether they are big or small.
In General all the Accounting Systems break down into four main Categories that are:
- Single entry
- Double entry
- Accrual basis
- Cash basis
Some of the Small Business Tax Accounting Blunders that you must avoid is:
- Deducting the startup Expenditures: It is always advisable to avoid deducting the expenses incurred even before the business becomes operational. And when the business does become operational it is advisable to be very careful while deducting the expenses as the rules concerning this are very much complex.
- Never ever think of Skipping the Setting up an Accounting System: As per law you need to have an accounting system in place that would clearly measure your income. The reason being that if you don’t have the accounting system in place then at the time of auditing the federal as well as the state accountants would do the accounting on your part. They would not be careful about minimizing your taxes and would never think of keeping your bookkeeping simple. Even otherwise in order to have a clear picture of your business tax deductions and the taxable profits that you make, it is important that you maintain a decent accounting system.
- Don’t rush into Incorporating Your Business: Although incorporating your business has many benefits but if you are a small company then incorporating it too soon might mean extra load on your accounting and also might mean heavier bills from your accountant.
- Never Avoid Quarterly Taxes: It is advisable that you do not avoid quarterly taxes and thus save yourself from paying obscene amounts at the tax return deadline.
- Never ever Fail to pay the Payroll Taxes: The payroll taxes that you deduct from your employees are not yours. It is always advisable that you don’t consider the money as yours. Because, it is not. The money belongs to the government and all that you have to make sure is that you pay the payroll taxes in time. It is advisable to create a reserve just for payroll liabilities.