Tax Day is around the corner—is your business ready? We’ve talked to experts about smart small business tax strategies—plus tips on what you can do to be ready to go—without worry—when April 15th rolls around.
Gather all your information now
There’s nothing worse than scrambling for receipts and digging through shoeboxes at the last minute. Save yourself the stress, and get ready now. Accordion files are great for filing receipts and business expenses into categories that correspond to those on your tax return.
Claim those deductions
Many SMBs aren’t aware of all the deductions they’re entitled to—and that’s tantamount to throwing money away. Kay Bell, author of the Don’tMessWithTaxes blog and a contributing editor for Bankrate.com, says startup costs are a big one—and that there are lots of opportunities to take significant deductions that will help lower your overall business tax bill.
“You can deduct up to $5,000 in start-up costs in your first year in business, although this is limited if you have more than $50,000 in start-up costs,” says Bell. “If you have more than $5,000 in start-up costs, you can amortize them over 15 years.”
Or, explains Bell, you could choose to spread all your start-up costs over 15 years, taking the same deduction each year—instead of deducting $5,000 in your first year. Business owners also get a choice each tax year to either depreciate some equipment—write off the expense over several years (how many years is determined by the type of equipment)—or write it off in the year in which it was bought/put in service. Determine what you need to buy for your business and which method works best for your business taxes.
Hire your kids—and take that deduction
If you're a sole proprietor, or are in a partnership where you and your spouse are the only partners and you hire your children, you can claim a business tax deduction for the kids’ salaries.
“If it's not too much money, the children may not have to pay any tax on the income,” says Bell. “Plus, there is no Social Security tax when you hire your child who is 17 or younger.”
Use a pro
As tempting as it is to load TurboTax and go to town, it’s much smarter—and much less stressful—to hire a pro for the best tax help and advice. The IRS has had a big push in recent years to regulate tax preparers—including holding them accountable and requiring them to pass competency exams.
If you hire a tax pro for your business taxes, Bell recommends you ask about his or her IRS registration status, as well as how they can help you with tax needs for your particular business or industry.
Make friends with the IRS
The IRS offers a wealth of information for both consumers and small businesses. Visit the IRS’ Small Business and Self-Employed Tax Center, and find online tools, resources, and much more.
Whether you’re launching, growing, selling or closing a business, the site has information and tax advice that can help. For example, businesses can also apply for an Employer Identification Number online, get access to business forms and publications, or find information on employment taxes.
Resources include the IRS Video Portal for videos and webinars on a variety of topics from filing and paying your taxes to understanding the IRS audit process; and online tools like the Tax Calendar for Small Businesses and Self-Employed, which gives SMBs e-filing and e-paying options, as well as the ability to set up alerts for important filing dates and tax tips.
The IRS also has an online Small Business Tax Workshop—a series of nine interactive lessons to help businesses understand federal tax obligations—plus information about free IRS small business workshops in your area.