It’s hard to believe tax time is right around the corner. If you’re a small business owner, this time of year can not only be extremely frustrating but even worse, COSTLY, unless you’re fully knowledgeable on the latest tax laws that affect your business.
How you declare your business income, understanding the types of taxes you’re required to file, the numerous deductions that can save you money, and understanding employee and contract labor laws all determine how much you’ll need to pay Uncle Sam.
Gross receipts and sales records are necessary when it comes to accurately declaring business income, all the while making sure you keep your business and personal finances separate. Only if a business is incorporated are your personal finances completely protected from actions taken against the business.
For those that file their own tax return, the most common error is overestimating their tax burden by missing deductions they’re not aware of. Most are aware of standard business deductions – supplies, equipment, utilities, internet, telephone, vehicle mileage, travel expenses, and depreciation, but legal fees, insurance premiums, retirement contributions and commissions paid to subcontractors are also legitimate deductions. Another deduction many business owners may not be aware of is start-up costs. You can claim up to $5,000 in start-up costs the first year and equal amounts over the next 15 years of your business. Continuing education costs are also deductible, provided they’re business related.
When calculating deductions for a home office, in addition to deducting a pro-rata share of utilities based on the size of your office, make sure to include mortgage interest or rent paid as well as home owners insurance premiums. Be careful, however, of over claiming expenses. The three categories of deductions most scrutinized by the IRS are home office deductions, car expenses and entertainment expenses.
Regardless of your ability or inability to pay your tax bill, the worst thing you can do is not file. Even filing late is better than not filing at all. Trying to hide from the IRS can lead to increased agitation and penalties can accrue at an alarming rate. If you can’t pay your tax bill in full, installment plans are available.
If you’re at all hesitant about filing your own tax return, it may be well worth it to rely on a professional tax preparer. The tremendous peace of mind is certainly worth it and the cost may be less than you think. Ask your accountant if tax preparation services may be included in a package of other business services you may already be paying for. It may be cheaper in the long run to eliminate some of the administrative services you do to save money and focus that time and energy on servicing your clients.
Anthony Mazzo is owner of A Mazzo Accounting located in Kenhorst, PA. Tony assists many businesses with their accounting needs including payroll, bookkeeping and tax preparation. They also assist individuals with their tax preparation.