Preparing for tax season is really a year-round project. Tip number one for small business owners is to keep your financials up-to-date on a monthly basis, using an accounting system - our pick? We always recommend Quickbooks Online (see their pricing options here.)
If you keep up with your books a little bit at a time, come tax season, everything you need is all in one place. Well organized business owners are so much better positioned to minimize their tax bill while avoiding penalties associated with 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 & deductions
Small businesses typically benefit from a wide range of tax credits. From special allowances for research and development, to programs that supplement wages for student employees and apprentices, knowing which credits apply to your business can save you a bundle on taxes.
It’s also important for business owners to be savvy about deductions. After all, you want to keep as much of your hard-earned revenue as possible. Often-overlooked items you may be able to deduct include:
Seminars, classes or conventions you attended to improve your professional skills;
Unused inventory that you’ve donated to charity (a good reason to consider donating your overstock, rather than paying for storage); and
Capital assets, such as office furniture, computers, and equipment.
Speak to your accountant or CPA about the full range of available deductions you can plan for each tax year.
Be careful about what you claim
If you run your business out of your home, you may be able to claim a portion of expenses like utilities, insurance, property tax, and rent. But you’ll need to keep good records, and all your receipts, to justify why you’ve allocated business costs to your home office.
The same goes for home office computers and mobile phone expenses. While it's totally fine to deduct these costs, you have to make sure you keep personal and business use separate - and you definitely can't deduct your entire family plan with the unlimited data and Netflix bundle (darn)!
Want to claim drive-time as a work expense? Make sure you keep a log of your business-related mileage, like the meeting you had at your client's office, so you can clearly demonstrate how your personal vehicle was used for professional purposes.
Don’t miss the deadline!
This should go without saying, but every year small business owners are hit with serious penalties for filing taxes late. Missing the deadline can have a range of negative repercussions, including:
Added interest to amounts owed, plus a late payment penalty;
Losing your claim to a refund;
Loss of credits toward retirement or disability benefits; and
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
A survey of small business owners found that a full quarter don’t understand their tax obligations. What’s more, 27% only speak to their accountant at the last minute, 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 you’re getting the most out of your tax return, that your documentation is complete, and so you can actually find someone who is taking on new clients - this can be a problem right in the thick of tax season!
A very useful deduction idea? Your bookkeeping and tax preparation fees! If you're ready to get this off your plate so you can focus on this year's business goals, get in touch. We'd love to meet you.