Tax preparation season is here and with it comes a lot of stress. While we can’t eliminate the stress that tax season brings, we can give you some tips to help you prepare for tax season. As a small business owner, you need to have a clear understanding of how this year’s taxes are going to affect you and your business. Keep the following tips in mind as you prepare for the April 15, 2013 deadline:
Maintain Good Records
Ensure that your taxes are filed accurately by maintaining good records year-round. Make sure that you have any necessary paperwork readily available come tax time. Should you be audited, you will need the paperwork to back up your deduction claims.
Know What Deductions You Can Take
Do you know what small business deductions you can take? Remember that if you take any small business deductions, you will need the documentation and original receipts readily available. Tax deductions and credits change each year, so make sure you have thoroughly researched your deductions prior to sending in your tax return.
Take Advantage of the Small Business Jobs Act Tax Provisions
Signed into law by President Obama, the Small Business Jobs Act of 2010 consists of 17 tax provisions designed to decrease the tax burden for small businesses. Several of these provisions can be utilized during this year’s tax season (2013) so make sure you review them thoroughly.
Remember the Credits within the Affordable Care Act
The tax credits within the Affordable Care Act allow a small business to cover up to 35% of the premiums it pays to cover its employees. Keep in mind that in 2014, this rate will increase to 50%.
Avoid the Most Common Audit Traps
Be aware of any following potential red flags and act on them before the IRS has a chance to:
- Home Office Deduction – This deduction is very specific. Just because you have a home-based business does not mean that your business will qualify for this deduction. Likewise, if you operate your business from a location outside of the home yet claim a home office deduction, you might trigger some unwanted attention from the IRS. Make sure that your business is eligible to claim this deduction and make sure you know what specific expenses you can write off if you claim it.
- Classifying Your Employees as Independent Contractors – Contractors are not the same thing as employees, and it is very important for you to know the difference. The IRS views this misclassification as an attempt to avoid paying payroll taxes and even the slightest mistake can bring penalties and back taxes. Because of this, it is important that you make sure you know the proper classification of those who work for your business.
- Large Miscellaneous Deductions – Any time the IRS sees businesses claim a large amount of itemized deductions relative to your income, they become suspicious. Likewise if they see large amounts of miscellaneous expenses reported. Make sure that you are specific and label every deduction accordingly.
Keep Your Personal Expenses Separate from Your Business Expenses
Know that the IRS closely scrutinizes any personal expense that is claimed as a business expense (such as the use of a business vehicle for personal use). Keep good records and maintain a separate bank and credit card accounts for your business. Trust us on this one, you will be glad that you did.
We know that tax time can be stressful, especially with all of the uncertainty regarding changes to tax laws. As you prepare your business to enter tax season, keep the above tips in mind. If you feel that you are in over your head, considering hiring an accountant or CPA to assist you with your tax preparation. For more information on how to go about choosing an accountant, read our article, “What Should I Look for in an Accountant?”.