By Holly DeVito, owner of Sum of All Numbers

Does the thought of preparing your small business tax return give you a headache? As an entrepreneur, you’re likely to face more volatile income fluctuations than you would as an employee of a large company, so you need to save as much money as you can now to build up a cushion in case times get tough. Saving on your small business taxes is one very important way to reduce costs and keep more of what you earn.

There are crucial small business tax tips which can substantially benefit your business and save you from the headaches. By following these simple tips, your business taxes can actually work more in your favor and save you more money.

First, small business owners need to ensure their business is structured correctly in regards to sole proprietorship, partnership, limited liability company (LLC), C corporation and S corporation. This structure has a strong influence on your business tax situation and the way in which you report your income.

Another important tip to help in filing your taxes is to keep well-organized, substantial financial records. By maintaining meaningful financial records, your business operations will run more effectively on a daily basis while also minimizing both current and future tax liabilities. During an audit, it’s up to the business owner to provide proof that expenses and deductions were business-related, ordinary and, most of all, necessary.

It’s also important to be aware of the tax rules relating to business deductions for meals and entertainment. Many individuals make the mistake of deducting 100% of meals and entertainment expenses while the maximum allowable is 50% of the costs – and only if proven to be business-related.

Can you pass the Laugh Test? Are you able to explain to the IRS what your business deductions are without laughing about it yourself? If not, then the IRS does not perceive it as ordinary and necessary and the deduction is considered a personal expense. This will definitely raise a red flag.

Lastly, it’s important for small business owners to properly identify employees as permanent employees or independent contractors. Oftentimes, individuals believe they can save money in employee taxes by paying employees as independent contractors. If you get caught doing this by the IRS, the result is very costly.

There are limits as to how far you can go with the above strategies and numerous rules to follow to make sure you stay within the parameters, which the IRS permits. Consult with your accountant or financial advisor to become aware of the rules and small business tax tips to achieve the most favorable results for your small business.