Frequently Asked Questions.

Running a business means juggling a lot of responsibilities, and financial decisions can be some of the toughest. Whether you’re just starting out or scaling up, having the right accounting knowledge helps you avoid costly mistakes and plan for long-term success.

To save you time, we’ve put together this FAQ of the 10 most common accounting and tax questions business owners ask. Each answer is short and clear so you can get the insights you need quickly.

1. What does an accountant do for a small business?

An accountant helps small business owners keep their finances organized and accurate. They track income and expenses, prepare financial reports, and ensure that taxes are filed correctly and on time. Beyond compliance, accountants act as advisors. They can help you create a budget, manage cash flow, forecast future growth, and identify areas where you can save money or increase profitability. Many business owners also rely on accountants to guide them through big financial decisions, such as taking out loans, making large purchases, or planning for expansion, so they don’t run into surprises later.

2. What business expenses are tax deductible?

Deductible business expenses are the costs you incur to run your company. Some common examples include office supplies, software, rent, utilities, mileage, employee wages, marketing, and professional services such as legal or accounting fees. To qualify, an expense must be both ordinary (common in your industry) and necessary (helpful for running your business). Keeping clear records and receipts for these expenses is crucial, because they can lower your taxable income and reduce your overall tax bill. An accountant can also help you identify deductions you might overlook, such as a home office deduction, business meals, or depreciation on equipment.

3. How much should I set aside for taxes as a business owner?

Since taxes can be one of the biggest expenses for business owners, it’s important to plan ahead. A general rule of thumb is to set aside 25–30% of your net income for federal and state taxes. This percentage may vary depending on your business structure (sole proprietor, LLC, S Corporation, etc.), the state you operate in, and the deductions or credits you qualify for. By setting aside money regularly—ideally in a separate bank account—you’ll avoid scrambling when tax payments are due. Some business owners also make quarterly estimated tax payments to stay current with the IRS and avoid penalties.

4. Should I form an LLC or S Corporation for tax purposes?

The right entity choice depends on your goals. An LLC (Limited Liability Company) is relatively simple to set up and offers liability protection, meaning your personal assets are usually safe if your business is sued or takes on debt. However, income from an LLC is generally taxed as self-employment income. An S Corporation is a special tax status that can help reduce self-employment taxes by allowing you to pay yourself a reasonable salary and take the remaining profits as distributions. This structure can save money but requires more paperwork, stricter IRS rules, and payroll reporting. The best option depends on your income level, how much profit your business generates, and your long-term goals.

5. Why does my business show a profit but I don’t have cash?

It’s common for small businesses to look profitable “on paper” but still struggle with cash flow. That’s because profit and cash flow are not the same thing. Profit is based on sales, even if customers haven’t paid you yet, while cash flow measures the actual money that has moved in and out of your accounts. If clients are slow to pay invoices, if you have large amounts of inventory tied up, or if you’re making loan repayments, your business may feel cash-strapped despite showing a profit. Learning to manage cash flow by tightening collections, controlling expenses, and forecasting ahead helps prevent these shortages.

6. What’s the best way to pay myself as a business owner?

How you pay yourself depends on your business type. Sole proprietors and single-member LLC owners typically take owner’s draws, which means pulling money out of the business account for personal use. These aren’t wages, so no payroll taxes are withheld directly, but you’ll pay self-employment tax on the income at tax time. S Corporation owners, on the other hand, usually take a salary plus distributions. The salary is subject to payroll taxes, while distributions may be taxed at a lower rate, potentially saving you money. Each method has different tax consequences, so working with an accountant ensures you’re paying yourself legally and tax-efficiently.

7. How often should I meet with my accountant?

How often you should meet depends on the complexity of your business, but most small business owners benefit from quarterly meetings. These check-ins allow you to review financial statements, track cash flow, plan for taxes, and make adjustments before issues snowball. At a minimum, you should meet once a year during tax season, but quarterly reviews help you stay proactive rather than reactive. If your business is growing quickly, facing financial challenges, or planning a major change, meeting more frequently—such as monthly—may provide even greater value.

8. What accounting software is best for small businesses?

QuickBooks Online is the most widely used accounting software for small businesses, offering features like invoicing, payroll, and financial reporting. However, it’s not the only option. Xero is known for being user-friendly and strong in integrations, Wave is a semi-free choice for very small businesses with simple needs, and FreshBooks is popular with service-based businesses for its time-tracking and invoicing tools. The best software depends on your industry, whether you have employees, how complex your finances are, and whether you want cloud-based or desktop solutions. An accountant can help you select and set up the system that best fits your business.

9. Can my accountant help me with IRS problems?

Yes. Certified Public Accountants (CPAs), enrolled agents, and tax attorneys are authorized to represent you before the IRS. This means they can respond to letters or notices, handle audits, set up installment agreements, and negotiate to reduce penalties or interest. If you ever fall behind on taxes or receive communication from the IRS, having a professional on your side can save time, reduce stress, and often lower the financial impact. Accountants also help prevent problems in the first place by ensuring your filings are accurate and on time.

10. How can I improve cash flow in my business?

Strong cash flow is the lifeblood of any business. To improve it, send invoices promptly, follow up consistently on late payments, and consider offering multiple payment options to make it easier for customers to pay you. On the expense side, review costs regularly, cut unnecessary spending, and negotiate better terms with suppliers. Many businesses also use cash flow forecasting to predict when money will come in and when bills are due, helping them prepare for slow seasons or unexpected expenses. In some cases, setting up a business line of credit provides a cushion during tight months.

Any other questions?

Running a business is challenging, but you don’t have to manage the numbers alone. Based in Laurel and Columbia, Maryland, our firm specializes in helping small business owners simplify their finances, stay compliant with tax laws, and build strategies for sustainable growth. Whether you need help with bookkeeping, tax planning, or improving cash flow, we’re here to guide you every step of the way. Schedule a consultation with us today and let’s build a financial plan that works for your business.