How Budgeting Software Can Help You Manage Taxes

Virtually everyone who’s worked for someone else knows how frustrating that can be, sometimes. It’s true that some of us are not only fortunate enough to have a job we love with a great boss, but it’s equally true that many, many people dream of opening their own businesses, where they can set their own terms. Even those with the best jobs working for others may dream of this from time to time.

Millions of people realize this dream every year, only to find it’s not nearly as easy as they thought it might be. No matter how skilled you are at whatever trade you perform, there are regulations and taxes, not to mention the general costs of doing business in workspace, materials, payroll, and all the other little things that go into making a business successful. Naturally, a budget is essential.

The good thing about taxes is that many business expenses are tax-deductible. The trick is finding what is and what isn’t and how to claim them. The bad thing is that you’re never going to get all your money back, no matter how many deductions you claim. You’re going to want to get the most out of your budget, no matter how much money you’ve got at hand, and to do that, you’ll need the best budget possible.


Your Electronic Accountant

The U.S. tax code has thousands of pages, with several hundred changes coming along every year. Most of these changes don’t affect the individual, but it’s a different story with businesses. It’s difficult, if not impossible for a human being to keep track of all these changes, and make sure you have all the information you need to keep your business not just alive, but thriving. Budgeting software, on the other hand, can go through those thousands of pages in seconds, finding the optimal way for you to file.

Today’s budgeting software is linked electronically to your personal account, and to the internet, when you need it to be. When the time arrives for you to file your taxes, it will already have all the pertinent up-to-date information available. And, of course, it will offer you the best deductions and options to keep your tax bill manageable.

The False Security of Underpaid Taxes

Many small businesses get letters from the IRS on a yearly basis, because they may have underpaid their taxes. Without an expert or a decent software suite or application, this is all too easy to do. Taxes aren’t just something to think about when April 15th approaches. It’s a year-round concern. You may feel like you got a good deal, when in fact, your budget hasn’t been keeping up with your tax obligations, and in the end, you end up paying a good deal more than you expected.

Professors at American University have compiled a list of useful tax tips for small businesses. Following are some of them for you to consider:

  • Even if you have tax software, consider hiring an accountant who knows your particular business. Different niches have different regulations.
  • Never use money being withheld for payroll taxes (or any taxes), not even just to “loan” yourself a little money for a short period of time. It almost always comes back to bite you – hard.
  • Be absolutely certain any of your relatives, whether by blood or marriage, who work in your business follow the exact same employment rules as unrelated employees.
  • Cash payments are still taxable. The IRS keeps track of taxpayer statistics and can often tell when there is unreported money flowing into and out of your business.
  • You (or your accountant) should keep all tax records regarding your business for at least three years. If you are in the property business and there is depreciation involved, keep the records until you no longer have the property, plus another three years.
  • Remember: if the IRS believe you have not complied with tax legalities somehow, the burden of proof is on you, not on them. You (or your accountant) will have to provide evidence of your compliance.
  • If you can’t pay your taxes for some reason, it’s time to talk to an accountant. You can’t hope the IRS won’t notice if you just skip a year. They always find out.
  • Use a third-party administrator if you plan to offer your employees benefits such as 401(k).
  • Learn the rules yourself regarding all aspects of business. Your accountant will know them inside and out, but you should be fairly conversant, as well.
  • Acquire up-to-date tax software. This means applications that not only keep track of your records, but are able to keep up with any changes to IRS regulations.

Making Taxes Easier

The goal is saving money, and to do so, you’re going to have to save receipts. Luckily, best budgeting software solutions will often has a provision for that. Instead of keeping accordion folders or shoeboxes full of slips of paper which have to be sorted by month and category, you can simply catalog them with a cell phone app. Some even provide the means to scan them. This makes it vastly easier to claim them as deductions on your taxes, and of course, to update your budget instantly.

You probably know donations are deductible. Did you also know bonuses (and the attendant payroll taxes) are also deductible? Talk to your accountant about it. Classes, seminars, and other educational events which teach or improve skills necessary for your business are also deductible. You may even be compensated for that convention you want to attend, if it’s job-related.

Many small business owners work out of their homes. If that’s you, you may have more deductions coming. After all, your home is your workspace – so things like insurance, utilities, depreciation, repairs, and more may well be partially taken care of in the form of a tax break.

Some types of businesses may be able to deduct expenses for vehicle use, even if the vehicle isn’t a company vehicle, if an employee is using that vehicle for business purposes. It may not seem like a great deal per trip, but filling up the gas tank and paying for parking and tolls can add up over the course of a quarter or a year.

Put your budgeting software to use early and do a test run of your expected taxes well before the date you actually file, to get an estimate of how much money you’ll need to provide. You could well be avoiding some stiff penalties, and maybe even discover a few more ways to ease your tax burden.

When Exactly is Tax Time?

If you’ve already started your business, or have had one in the past, you may have noticed the taxes for self-employment are somewhat higher than the payroll taxes you pay when working for someone else. This is, of course, because an employer pays part of those taxes as part of their employment regulations. Entrepreneurs have to pay it all for themselves, in addition to paying a portion of the Medicare and Social Security payments for any employees they might have.

As your own employer, you’re going to have deduct those taxes yourself. Furthermore, they won’t be sent whenever you pay. To keep track of them, you’re going to have to estimate your tax payments on a quarterly basis. Since self-employed persons do not get a regular paycheck, the IRS allows for tax payments not only on April 15, but June 15, September 15, and January 15, as well. Use your budget software to help you assess just how much you owe so you can avoid major fines and interest for underpayment of your taxes. Unless you owe less than $1,000 in taxes or have already paid 90% or more of the tax you currently owe, you will be considered to have underpaid and penalties will be assessed accordingly.

The Affordable Care Act

Thanks to the updating qualities of your software, you’ll be ready for the changes to the tax system caused by the Affordable Care Act (ACA). It doesn’t apply to the smallest of small businesses, but anyone that employs between 50 to 99 employees is now required to provide health insurance to most of their full time employees, or face a $2,000 tax penalty for each employee.

You will be required to report on your employees’ W-2 forms how much you are paying for health coverage, as well, or be fined $200 for each failure to do so. It may turn out to be better for your budget to take the penalty for non-coverage rather than pay health insurance. A trial run of your budget via your software and consultation with a tax professional will tell you what direction is best for you and your company.

Look Forward to the Future

Finally, you’re not going to want to work forever. And even if you do, it’s a good idea to put a little something off to the side. Incorporate that into your budget and look for 401(k) and IRA plans that serve the self-employed. Not only will you build money toward retirement, the money is tax-deductible. You only have to pay taxes on it when you withdraw the money from the fund. Once you look into retirement options, you may be surprised by the many choices you have – and you can pick just before the filing deadline to get a last minute deduction.

Daniel Epstein

By Daniel Epstein

Daniel Epstein is a senior financial research analyst at FinancesOnline and the architect behind our Fintech and ERP content division. His main areas of expertise are blockchain technologies, cryptocurrencies, and the use of biometrics in fintech solutions. His work has been frequently quoted by such publications as Forbes, USA Today, Entrepreneur, and LA Times. With more than 1,800 solutions scrutinized in the last 5 years spent on our team he always prioritized offering readers an unbiased perspective on modern financial technologies.

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