Tax Season Tips for Small Business Owners
Tax season comes once a year, but preparation is a year-round effort.
In fact, small business owners should really update financial data monthly with streamlined software or a cloud-based system. When tax time arrives, everything will be ready in one place. Plus, well-organized small businesses are in a better position to minimize their tax bill and avoid penalties for missing or inaccurate information.
Here are four more ways to take the stress out of tax time and get the most out of your return.
Know your credits and deductions
You don’t want to miss out on tax credits and deductions. First of all, your business could benefit from a wide range of tax credits. They extend from special allowances for research and development to programs that supplement wages for student employees and apprentices. Knowing which ones apply to your business can save you a bundle on taxes.
Deductions are also important to keep as much of your hard-earned revenue as possible. Often-overlooked deductions include:
- Professional seminars, classes or conventions
- Unused inventory you donated to charity
- Capital assets, such as office furniture, computers, and equipment
Speak to your accountant about the deductions you can plan for each tax year.
Be careful about what you claim
It can be confusing separating your business and personal expenses. If you run your business out of your home, you may be able to claim a portion of your household expenditures. Those expenditures can include utilities, insurance, property tax, and rent. To claim them, you’ll need to keep good records and receipts to justify why you’ve allocated business costs to your home office.
The same also goes for home office computers and mobile phone expenses. Tax authorities will want to see how you’ve separated the personal and professional use of these assets when you claim them as work expenses.
Want to claim drive-time as a work expense? Then make sure you submit a log of your business-related mileage so you can clearly demonstrate how your personal vehicle was used for professional purposes.
Don’t miss the deadline
This sounds simple, but every year small businesses are hit with big penalties for filing taxes late. Missing the deadline can have a range of negative consequences, including:
- Interest to amounts owing and a late payment penalty
- Losing your claim to a refund
- Loss of credits toward retirement or disability benefits
- Delay of loan approvals (lenders require a copy of your filed tax return in order to process your application)
Seek expert advice well in advance
Do you understand your tax obligations? A recent survey of small business owners found that a quarter of them don’t. What’s more, 27 percent don’t speak to their accountant until just before the filing deadline.
Software has made it easier than ever for small business owners to file for themselves, but when it comes to thoroughness and accuracy, nothing can replace the expert advice of an accountant.
Consult a professional well in advance to ensure that you’re getting the most out of your tax return and your documentation is complete. You’re in luck — accounting fees are often tax deductible!