Tax time tends to be one of the most stressful times of the year for most small business owners. This is largely due to the fact that instead of preparing throughout the year for tax season, we tend to wait until the last minute sort of like cramming for an exam. Implementing some of the tips that we have shared with you below will not only reduce your stress but also save you time and money.
Business Tax Prep Tips
Tip #1: Use A1Tax LLC services to avoid costly IRS penalties
Did you know that approximately one-third of all companies get fined each year for incorrectly handling payroll taxes? This is due in large part to the fact that around 40% of businesses with employees try to handle payroll on their own, using paper or spreadsheets, without the assistance of a third party.
Don’t get caught in this trap–We recommend A1Tax LLC for all your payroll handling needs. They will automatically calculate, deposit, and file your payroll taxes for you–and their US-based customer support means that help is easy to find when you need it.
Tip #2: Keep business and personal finances separate.
A common mistake of small business owners is to commingle business and personal funds. It’s important to have a separate bank and credit card account for your business. This will make things a lot easier when it comes to managing your books and getting things organized for tax time. If you are ever audited by the IRS you want to make sure that you can produce documents that support legitimate business expenses.
Tip #3: Get organized.
One of the primary reasons people dread tax time is because they are not prepared. By implementing just a few things into your daily, weekly, or monthly routine you can remove the stress that tax season can bring on. Here are a couple of recommendations to get you started:
Set up a filing system to keep all of the paperwork you accumulate in one place.
Purchase a dozen expandable folders so that you have one for each month. Label each folder with one of the 12 months and file all receipts, deposit slips, ATM withdrawal slips, etc. into their respective folders.
Block out a couple hours each month on your calendar.
If it isn’t on your calendar, most likely it will not get done. However, if you set aside just a few hours each month to organize all of the paperwork in the folder, you won’t have to do 12 months at one time. During this time, you want to reconcile your bank and credit card accounts by matching up your receipts with the statements received from your bank.
Another good option, would be to just hire the services of an experienced small business accountant, like those at A1Tax LLC. They have had years of experience calculating things like depreciation, streamlining bookkeeping, and maximizing deductions at tax time. Get in touch with them today for a free consultation.
Tip #4: Use accounting software like QuickBooks Online to track revenue and expenses throughout the year.
An accounting software program makes tax time a breeze. Once you have updated the program with all of your business revenue and expenses, you can quickly create financial statements in just a few minutes to send to your CPA or tax professional so they can file your tax return. If you use QuickBooks Online, you can set your tax preparer up with a user id and password so that they can access QuickBooks and run reports instead of you having to do it.
Business Tax Deductions
Business expenses are the cost of carrying on a business. A business expense is considered to be tax deductible if it is ordinary and necessary. The IRS defines ordinary and necessary as follows:
Ordinary expense – one that is common and accepted in your trade or business.
Necessary expense – one that is helpful and appropriate for your trade or business.
Here are some of the most common deductions available to small business owners. You can deduct other ordinary and necessary expenses as well.
Just as a quick note, it may be worth your while to get in contact with an experienced small business accountant. A1Tax LLC has a team of accountants that have had years of experience maximizing deductions for small business owners.
Tip #5: Take the home office deduction.
If you use part of your home for your business, you may be able to deduct a portion of expenses, like your mortgage interest, insurance, and utilities. This deduction is for homeowners and renters. Click here to visit IRS.gov, and find out if you meet the requirements to take this deduction.
Tip #6: Take the auto expense deduction.
If you use your car in your business, you can deduct car expenses. You can choose one of the following methods for this deduction:
1. Standard mileage rate
For this method, you would multiply the total miles driven for business by the standard mileage rate for the year. For 2016, the standard mileage rate is 54 cents.
2. Actual car expenses
you can deduct actual car expenses like gas, repairs and insurance. However, if you use the car for personal and business then you will need to calculate the percentage that the vehicle was used for business purposes first and then apply that percentage to the total car expenses. For example, if you drove your car a total of 15,000 miles and based on your mileage tracker 6,000 of those miles were for business then you would divide 6000/15000 which equals 40%. Therefore, you can deduct 40% of your total car expenses as a business deduction.
Tip #7: Do lunch.
You can deduct 50% of meals that are considered business-related. This includes taking a client or even a potential client out to lunch. It could also include ordering pizza for the office as a special treat for your employees. Just make sure that these meals are not lavish or extravagant. A good rule of thumb is to treat your business finances as if they were your personal funds. Don’t dine at that new restaurant or play a round of golf at that country club just because you can write off half of the cost. However, if those are places that you wouldn’t hesitate to spend your own personal money then you should be ok to take the deduction.
Tip #8: Use independent contractors instead of employees.
Most business owners when starting out cannot afford to hire employees because they have to pay payroll taxes and provide other benefits. By hiring an independent contractor, you do not have to pay benefits or payroll taxes. However, make sure that you understand the difference between an employee and an independent contractor. If your independent contractor meets the legal definition of an employee, you could face penalties. Refer to the Hire a Contractor or Employee article posted by the Small Business Administration to learn more.
Be sure to have all contractors complete a W9 form. This will ensure that you have all of the necessary information to provide them with a 1099 tax form at the end of the year.
Tip #9: Take the Section 179 deduction.
This deduction allows you to recover the full cost of equipment or property up to $500,000 that you purchased for your business in the same year that you purchased it. This beats recovering the cost over a period of time like 5 or 10 years through depreciation deductions. Check out our Section 179 calculator to find out how much you can save.
Tip #10: Consider setting up a retirement plan.
A retirement plan can provide several benefits for you, your business, and your employees. Below are just a few of the benefits:
- Employer contributions are tax-deductible
- Assets in the plan grow tax-free
- You are able to attract and retain better employees