The following is a guest post by Jayson Mullin.
With its ever-changing rules and confusing deductions, tax season can be extremely stressful. This is especially true for small business owners, as many of them simply do not fully understand their tax obligations. However, if you are a small business owner, read on for some valuable tax tips that will help get you through this frustrating time of the year.
Keep Consistent and Complete Financial Records
One of the most common mistakes that small business owners make is that they do not keep track of their expenses throughout the year. You must keep close track of any expenses related to your business and enter them into some form of accounting system. Cloud-storage technology is a great way to accomplish this.
Another common mistake many small businesses make is that they fail to keep track of the money they pay to outside contractors and vendors. If you pay any of these persons more than $600 total in one year, you must send them a 1099-Miscellaneous form. As such, whenever you pay outside professionals, make sure you keep complete records.
Start-Up Costs, Equipment and Inventory
If you started your business during the year for which you are filing your taxes, you can deduct up to $5,000 for start-up costs and $5,000 for organizational costs. Furthermore, you may be able to deduct up to $500,000 in equipment costs as long as your business spent less than $2 million on equipment during the year.
If you had to repair any equipment during the year, the repairs may be deductible as well. Finally, if you have any unsold inventory at the end of the year, consider donating it, rather than storing it. In this way, you can enjoy a tax deduction. However, donations over $500 have stricter reporting guidelines.
Training Expenses and Professional Fees
If you incurred any training or educational expenses during the year to improve you or your employees’ working skills, you can deduct those expenses on your tax return. These expenses can include, but are not limited to, college courses, community-offered classes, seminars and conventions.
Additionally, if you had to pay a professional for their services, these costs may be deductible as well, as long as the services rendered helped your business in some way. The services of consultants, tax professionals, notaries or doctors are tax-deductible.
Payroll Taxes and Employees
Perhaps the most common mistake that small business owners make today is that they use their employees’ taxes withheld to fund their operations. You must never do this. Not only will the IRS go after your personal assets to collect this money, but they may also assess you with large penalties.
If at all possible, consider having your children and/or spouse help you with your business, rather than hiring employees. In this way, the money that you pay your family is not taxed in the same way as it would be for outside help. Additionally, if you hire your family, you can also deduct their health care expenses.
Other Useful Tips
These are just a few of the top tax tips for small businesses today. Other things you may want to check out include deductions for such things as business-related meals, travel, moving expenses, home-based offices and retirement plans. When you use these valuable tips, you will have no problems getting through that dreaded tax season.
Jayson Mullin is a partner at Top Tax Defenders. They offer tax resolution services including asset seizure protection, audit representation and customized tax planning.