How to Prepare Your Taxes as a Small Business Owner
For many, tax time brings with it a sense of urgency and pressure, causing mistakes to inevitably follow. Tax deductions go unclaimed, paper trails go awry and costly surprises can result. However, when you are self-employed or own a small business, every penny counts. The following tips for preparing your taxes as a small business owner, can help you to keep more of your hard-earned money.
1. Payment Obligations. There is no worse feeling than watching your cash surplus vanish because you failed to prepare for an impending payment due. Worse yet, discovering the funds needed for tax payment have been spent. Unexpected payments and penalties can be avoided. Be aware of your tax payment obligations and when they are due.
2. Track Expenses. In order to take advantage of the various tax breaks offered to small business, a small business owner must track their expenses. Valuable tax deductions include, but are not limited to, the following:
· Auto Expenses: If you use your car for business, or your business owns its own vehicle, some auto expenses are deductible. While there can be some confusion as to what constitutes a legitimate driving deduction, mastering the rules of auto expense deductions can be well worth your while.
· Expenses of Going into Business: The costs of going into business are capital expenses, and up to $5,000 can be deducted for the first year that you are in business. Any remainder must be deducted in equal amounts over the next fifteen years.
· Minor Business Expenses and Professional Fees: Petty cash purchases, magazine subscriptions, licensing and educational classes can add up quickly. Many of these expenses may be tax deductible and are important to track. Additionally, fees paid to tax professionals, lawyers and consultants are expenses that can be deducted.
· Travel: When travelling for business one can exclude cost of airfare, lodging, food, and other general business expenses incurred due to operating away from the office.
· Interest: If you use credit to finance your business expenses, the interest and carrying charges are fully tax deductible.
3. Maintain Records. Failure to keep records up-to-date leads to missed opportunities for reducing your taxable income for the year. Not only is it important to track expenses, but it is also critical to make sure that they are reconciled and supported with receipts. Spending time each week reviewing your accounts can help to ensure that all amounts earned and expensed are captured, and that your records are accurate.
4. Separate Personal from Business. Intermingling your personal and business bank accounts can be a big cause of confusion, making it difficult to track income and expenses. For those who operate their small business from their home, make sure to keep the space for your business separate and distinct from the rest of the home so that you can correctly claim the home office deduction.
5. Payroll Compliance. Payroll tax compliance is something that many small business owners struggle with, and the consequences of getting it wrong can end up costing you in IRS penalties. To make sure your payroll taxes are deposited correctly, it is recommended to outsource your payroll process to a payroll company.
As a small business owner your primary focus should be making sure that your business is a success. Attempting to do this, while navigate the waters of the IRS can be difficult. Utilizing the services of a legal professional with an in-depth knowledge such intricacies can provide a much needed relief. The legal professionals at Anselmo Lindberg & Associates are here to help.