Today is Tax Day. If you have already filed your business and personal tax returns, congratulations! If you are one of the almost 12 million people who file an extension — get back to work if you owe money, as you will still need to pay about 90% of your estimated tax total by midnight on April 15 to avoid a penalty. How do you put yourself in a better position next year? Here are 5 ideas to make tax season the best season.
Keep Better Records
As a small business owner, paper (or digital record) is key to getting through tax time successfully. It’s best to keep receipts for all expenses over $75 and all records for three years (with records like mortgage documents for the life of the loan.). In a perfect world, every deduction you take would be backed up with 2 things: The bill with a detailed breakdown of expenses and proof of payment showing that you were the payer. You can use Dropbox or Google Drive to store and share the documents with your CPA easily and keep all of that paper out of your office folders. Read more about these ideas in this article from our archives.
Don’t Mix Business with Pleasure
The IRS simplified the home office deduction back in 2013, but one thing has held constant: a home office must be used exclusively and regularly for business. Working from home on your couch one day a week doesn’t count. Additionally, the deduction can only go to income directly from the business. If you run your business from your home, but frequently travel to meet clients or have employee meetings, a commonly missed deduction is the travel associated with those events. So make sure to record the mileage as appropriate. As a continuation on keeping better records, it’s generally best to have a separate file or specific credit card just for your business. This will ease the tracking process and make sure that you don’t mix your business expenses with your personal expenses. A few other common deductions can be found on the NFIB website.
Understand all the Forms
While the W-2 is a simple standard statement of wages and taxes, the 1099 has many different versions and types of income that it reports on – and it can be confusing – especially the first time you receive a new one. Most people are familiar with the DIV or INT versions (for stock dividends and interest income), but what is the K, and what do you do with it? Created in 2011, if you have a merchant account, or process payments for your business through a third party (like PayPal or Stripe), you’ll receive a 1099-K form. It was created as a way for the government to check the accuracy of the sales you report on your corporate tax return, so make sure that everything jives with what you expect to pay. If it isn’t accurate, here’s what to do.
Remember the Post-Year-End Options
Even though the year technically ends on December 31, there are a few things you can do in between the end of the year and April 15 to reduce your tax burden. IRA contributions (as long as you designate that it’s for the previous year) can be submitted up until tax day. If you are an accrual-based business, costs incurred and invoiced before year-end are still eligible—even if they have not been paid yet. Additionally, you should still pay your quarterly tax payments for Q4 and not roll them into your April taxes. That won’t be a deduction, but it will be a way to adjust your cash outlays to avoid taking one big hit.
Don’t Leave Your Accountant Hanging
Just because you hired an expert doesn’t mean you should just leave her alone to the task. A good CPA will let you ask questions and become a good resource for you. With your CPA’s help, you’ll be better prepared and gain more value than just getting your taxes submitted. This is also part of the reason why you’ll want to get started earlier next year (or even do an extension this year). Those insights and additional information take time to prepare, ensure accuracy and truly maximize the opportunity in the process.
Want to learn more about the financial aspects of your business so that you can be better prepared? Check out our Ultimate Guide to Small Business Financial Management and let us know other ways you stay organized to make tax time the best time.
Disclaimer: The content of this article is provided for informational purposes only and does not fit every situation nor is all-inclusive. No one should act or refrain from acting on the basis of any information in this website without seeking the appropriate professional counsel on his or her particular circumstances.