Tips offer help during taxing season
Small business owners must understand how taxes affect them and their businesses. It’s important to claim the right tax deductions, file properly and avoid audits.
Here are a few tips, including some links to online resources offered by the U.S. Small Business Administration and other federal government sources, to help ease the burden of tax preparation and prepare for the April 15 filing deadline:
Keep good records: Proper record keeping year-round constitutes the first step in ensuring taxes are filed accurately and the paperwork is available to back up deductions in the event of an audit.
Understand your deductions: What small business deductions are available? Is the documentation and original receipts available to back them up? Remember, too, that tax credits and deductions change year to year. For more information, check out the SBA guide to tax deductions at www.sba.gov/content/small-business-expenses-and-tax-deductions.
Take advantage of the Small Business Jobs Act tax provisions: The Small Business Jobs Act of 2010 includes 17 provisions decreasing the tax burdens for small businesses. Several of these provisions offer great savings. For details, check out the information posted online at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Small-Business-Jobs-Act-of-2010-Tax-Provisions.
Become familiar with the recently enacted tax incentives contained in the fiscal cliff deal: The deal negotiated by Congress and President Barack Obama includes extensions of several small businesses tax incentives designed to spur innovation, support capital investment and make it easier to hire new workers. In fact, the legislation extends some of the most important tax credits the president signed into law during his first term. More than 98 percent of Americans and 97 percent of small businesses will not see income taxes go up. For more information, log on to www.whitehouse.gov/blog/2013/01/02/seven-things-you-need-know-about-tax-deal.
Remember, too, the tax credits included in the Affordable Care Act: These tax credits allow small businesses to cover up to 35 percent of the health insurance premiums a small business pays to cover its workers. In 2014, the rate will increase to 50 percent. For additional information, log on to www.sba.gov/content/CareAct.
In addition to taking advantage of various tax deductions and credits, small business owners must remain aware of potential red flags and act on them before the Internal Revenue Service does and orders an audit.
Classifying employees as independent contractors: Independent contractors and employees aren’t the same, and it’s important to understand the differences. In the eyes of the IRS, misclassification could be seen as an attempt to avoid payroll taxes. Non-compliance could result in penalties and back taxes.
Home office deduction: This deduction is very specific and not all home-based businesses qualify. Those who run their businesses from commercial locations and claim home office deductions could trigger some interest from the IRS. Know how to determine eligibility for home office deductions and what specific expenses can be deducted.
Large sum miscellaneous deductions: Those who claim a large amount of itemized deductions relative to their incomes also could make the IRS suspicious. The same holds true for a large amount of miscellaneous expenses. Be specific and label every deduction.
Keep business and personal expenses separate: The IRS scrutinizes personal expenses that might have been claimed as a business expense, such as the use of a business vehicle for personal use. Remain diligent in keeping good records. Maintain separate bank and credit card accounts.