Tax Season Tips: 5 Fool-Proof Tax Tips for Small Business Filers
Posted by Kate Webster on February 6, 2013 in Business Financing [ 0 Comments ]
Tax time can be a stressful period for small business owners. Just after year-end finances and the busy holiday season, it’s the last thing you want to deal with. And thus, figuring out your expenses and accounting for deductions correctly can get confusing and frustrating.
In order to avoid unwanted attention from the IRS, it’s important that you do your research and get a better understanding of the tax-filing process. The following are 5 fool-proof tips for filing taxes as a small business owner.
1. Get the Right Software
As a small business owner, sole proprietor, or freelancer, you will likely file your own taxes instead of using a CPA. Tax preparation software allows to you calculate and file your taxes relatively easy, and keeps you in line with the latest updates and regulations.
- Be sure that your business software allows you to file as a business or Schedule C. Many free and inexpensive options don’t include this feature, but some software companies offer specialized software for small businesses.
2. Understand Deductions
One of the more confusing parts of filing taxes is understanding what expenses are deductible. As a small business owner, if might be difficult to determine what deductions you are eligible. We tackled this in a previous blog post, Business Tax Deductions You Don’t Want to Miss This Year, so be sure you’re getting every possible credit.
- Tax credits and deductions change every year, and your CPA or tax software usually can assist you through determining your deductions
- In 2012, the business driving-rate deduction was 55.5 cents per mile
- Not all home-based businesses qualify for home office deductions
- Label every deduction and be as specific as you can when listing them
- The first year deduction (section 179) limits the first-year write off to $139,000
3. Keep Good Records Year-Round
This tip is essential for small business owners. Just like any other area of business, your tax records should be kept up and organized throughout the year by purchasing the right accounting software.
If you maintain your organization as time goes by, tax time won’t be nearly as big of a headache when it comes around. Different types of software can help you keep track of expenses and investments so that they are easier to monitor and deduct.
4. Classify Employees Correctly
If you have a few employees in your small business, you should be sure you aren’t filing them incorrectly on your taxes. Though you may just consider it their position titles, employee’s classification can actually make a big difference when it comes to taxes.
- The IRS makes note of the distinction between independent contractors and employees, and commonly sees it as a way of avoiding payroll taxes. If they determine you have misclassified your employees, you could be charged for back taxes, penalties, and interest.
5. Keep Business and Personal Separate
In the same vein of keeping good records, small business owners should always be conscious of keeping their personal and business expenses separate. Whether the mistake is intentional or not, if you file personal expenses as business deductions, you could be in trouble with the IRS. Keeping receipts properly filed and taking out a separate small business banking account can help you avoid a mix-up.
Incorporating a tax strategy can help keep your tax bill to a minimum, and having a clear understanding of what you’re responsible for can help ease the stress of filing your taxes. Small business owners are eligible for various deductions, so be sure you are keeping accurate records and doing your research to get a good deal but not end up paying expensive fees.