The April 15th tax deadline is quickly approaching, but there is still plenty of time to take action and ensure that you file properly, avoid audits, and claim all eligible tax deductions. One of the biggest mistakes that small businesses make is not keeping up-to-date financial records. Proper record-keeping is the first step towards accurate tax filing. Hopefully you already have implemented a record-keeping program or accounting software that centralizes and tracks your expenses for easy deductions and quick filing. Furthermore, here are some last minute tax tips for your small business.
Analyze Potential Deductions
This is key to any successful tax return, but must be done carefully. If you have recently purchased equipment or software that qualifies under Section 179 of Small Business Expensing, the full purchase price may be deductible. The traditional home-offices form can still be filed as well with a simplified cap form. Do not try to use a family vacation as a business trip or expenses that are unrelated to your business expenses such as pet supplies, personal pampering, or a new car tax deduction. The IRS carefully reviews these flags.
Know Healthcare and Payroll Taxes
Healthcare and payroll tax changes occur all the time. Make sure you are up to date with this information. For example, higher-income taxpayers are required to dish out an additional tax on Net Investment Income as well as Medicare Tax. You can thank the Patient Protection and Affordable Care Act for this movement. If you are unsure of what recent changes have occurred, seek out a professional who is knowledgeable in this area and can help you.
Classify Employees Properly
If you misclassify your employees, the IRS may view it as a desperate attempt to avoid paying payroll taxes. Make sure you know the difference between independent contractors and employees. If you are out of compliance, your business may face harsh penalties and back taxes. The rise in this type of fraudulent behavior was seen after employers chose to classify their employees as independent contractors when the economy tanked. The lines are easy to blur when differentiating between a true freelancer and an employee. If you are not familiar with the differences, seek out someone to consult with you on this matter.
Separate Business Expenses from Personal Expenses
When filing your taxes, ensure that your records specifically separate your business expenses from your personal expenses. The IRS keeps a careful eye on those who claim business expenses, such as the use of a dedicated company vehicle that may have been used for personal endeavors. The best way to keep these divided is through maintaining a separate bank account and credit cards specifically for your small business.
Be Cautious of Large-Sum Miscellaneous Deductions
It may seem like a good idea to claim a large amount of deductions in order to reduce your tax liability, but the IRS will likely flag your return if miscellaneous expenses that are beyond what is typical are bucketed. If you do happen to have a vast array of deductions equaling a large sum, make sure that you are as specific as possible and label each deduction. This can easily be accomplished through good record keeping.
These five last minute tax tips could be highly beneficial for your small business, but to be better prepared for next year, build good habits through keeping organized records and be proactive in your approach to gaining knowledge relating to changes and alterations in tax rules. This will lead to an overall sense of less panic and anxiety when the spring deadline comes around.
Jessica Kane is a professional blogger who writes for Faxage, a leading company that provide online fax services for individuals and businesses.