Monday, March 14, 2016

Tax Tips for Your Small Business

It's the tax time of the year. If you are fortunate enough to have started a small business or you already have one up and running. Hopefully things are operating with the success you’ve intended it to be. As an experienced accountant, I find that business owners feel tax preparation is a dreaded aspect of their business. It can be time consuming, and frustrating, as things you are unaware of occur, and the fear of owing large tax amounts. I hope to provide valuable tax tips in order to ease any troubles you may have when approaching tax season.
  • Know your business classification.
This is the beginning, it determines how your business is viewed in the eyes of the IRS. The classification of your business determines what expenses you are able to deduct from the revenue (income) you’ve generated. For example, if you own a day care business, knowing that expenses such as advertisement, uniform cleaning expenses, food, toys, and books are all expense reductions from your revenue. Using your business expenses to apply against your revenue is very important, as this determines your tax liability owed to IRS and State.

  • Save all business receipts throughout year.
This is key for your tax preparer to determine what your actual taxable income is. This includes, bank statements, business related travel, business related meals, and equipment purchases, etc. Saving these documents are important to your tax preparer for the ease of calculating your income as well as your expenses. If you aren’t a paper hoarder, just scan them into a pdf on your computer. This will not only help determine your tax situation, but it will also serve as proof after filing, in case you need them for auditing purposes.
  • Make quarterly estimated payments.
If you are worried about having to pay taxes at the end of the year, you are able to make tax payments throughout the year on a form 1040-ES for federal and you can search on your state’s website for estimated state tax payments (For NYS its form IT-2105). Do not have a fear of overpaying, as similar to employer withholding, you will get overpayments back as a refund so you have no tax liability.
  • Tips for home based business
Home based businesses appear more in today’s society, so knowing what you need for tax filing purposes prior to seeing your tax preparer helps speed the process of filing. You pay rent or mortgage? You can use the portion of the house or apartment, in which you operate for your business, as an expense reduction in income. You pay for telephone, internet, and computer programs? The portion you use for your business are also expenses you can reduce the income you are taxed on. In addition, even what you paid to your tax preparer is an expense reduction if you itemize on your tax filing using form Schedule A.
These basic tips should help the ease of your tax filing process for you and your tax preparer. Also, it always helps to consult a tax accountant throughout the year, to learn of any new changes or new ideas to prepare for upcoming tax filing year.   

What is it like preparing taxes for your small business? Let us know in the comment section below!

By: Terrance Greene, an accountant based in NYC.

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