How Banks and Fintechs can Help Small Businesses Plan for Taxes

Running a small business comes with many challenges, not the least of which is accurate planning for taxes. However, this task doesn’t have to be difficult, and the banks and platforms that serve small businesses can help.

Banks and fintech platforms can make a huge impact by providing simple tools that save small business owners time and money — not to mention a lot of stress around tax season.

Small businesses and solopreneurs don’t always have sophisticated accounting software, and those who do don’t always have the time required to keep these systems up to date. The result is having critical tax information spread out in too many places.

Bank accounts hold income records along with some expense transactions, sales records are on fintech platforms used to sell products and services, and residual expenses can be in multiple locations — physically and digitally.

Potential tax deductions get particularly challenging to track when business owners commingle their personal and business expenses.

The combination of all of these situations can lead to stress and uncertainty surrounding tax obligations.

Fortunately, technology exists to ease these frustrations. With the right tools, small business owners can have everything they need to plan for taxes on one platform. I’ve said it before, and I’ll say it again: For small business owners, the holy grail is being able to track everything in one place.

Banks’ and fintech platforms’ role in tracking taxes

Many banks and fintech platforms have taken notice of the rise in the small business economy and are rushing to build proprietary tools to serve their customers better. But this takes a lot of time and money, causing most financial institutions to find themselves falling behind when it comes to serving their small business customers.

Small business customers are not all alike. In today’s new era of digital businesses, along with the explosion of contract and gig workers, financial institutions need to rethink who they’re serving and how to help their customers succeed.

Small business customers need to understand tax liability

You can’t run a business successfully, or even effectively, unless you have a clear understanding of liabilities — including taxes, which can be a mystery for small business owners. Guessing how much to set aside for taxes, or lowballing estimated taxes, is a recipe for disaster.

The basic math needed to calculate tax obligations is simple enough. Use the equation of income minus expenses multiplied by the correct tax bracket percentage, and you have a pretty good estimate. The more accurate the estimate, the better a business can plan for taxes.

Small business platforms will generally track sales, and some will even provide tax estimates and issue 1099s, but they’re often missing critical pieces of the tax estimation equation: the expenses. As for banks, which usually have the full income part of the picture and some expenses, it’s a matter of getting a clear picture of the expense part of the equation.

Using technology to bring together the full income picture plus expenses can give customers a more clear picture of their tax obligation — something banks and fintechs should want to help their customers with.

Why banks and fintechs should care

Both banks and fintechs depend on the financial success of their small business customers — an important segment that makes up about 44% of the U.S. gross domestic product (GDP). The more successful the customer is, the longer they will remain a patron. Being a one-stop shop for a business customer’s financial needs can mean a long and profitable relationship.

Taxes can add up to 40% of a small business owner’s income, and that is too much to not know until tax day. The more pieces of this puzzle a business owner can have in a timely manner, the better they can plan for taxes. And none of this should be left to calculate at the last minute.

Small business owners need to understand their tax obligations at all times, and this is information banks and fintech platforms can provide — it’s not hard.

By embedding the Tight API, banks and fintechs can give their customers real-time tax obligation estimates that allow business owners to plan ahead and sleep easier during tax season. Want to know how easy this integration can be? Ping me. I’m happy to chat.

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