April 15 is fast approaching. Are your taxes filed? Didn’t think so. But hey, if you are into mobile apps, there’s something for you courtesy of the IRS. Earlier this year the IRS released the latest version of its mobile app, IRS2Go.
In an article on Forbes, John Koskinen, IRS Commissioner, said this about the app: “The new version of IRS2Go provides taxpayers another way to quickly get information and help around the clock. The IRS is focused on providing taxpayers with convenient self-service tools like IRS2Go, but it’s important to remind taxpayers to only use official IRS products to safeguard their personal information.”
Unfortunately that may help you if you are into mobile apps, but it won’t answer all your tax questions – or get then organized for you.
Numerous new tax laws went into effect in 2014, with much of it revolving around the Affordable Care Act, AKA, Obamacare. It had a huge impact on the small business owner. That being said, taxes are confusing, mind-boggling and just a lot of work. So business owners, let a professional handle your taxes. And when you finally get around to organizing things, consider these helpful tips below. Note: This is not tax advice and should be viewed only as resources and tips to consider. We’re a job site, not a tax advisor, after all.
To get more information, read our previous article: 15 Hiring Expenses That are Tax Deductible
Here are three tips for small business owners to help get through tax season, now and in the future, from the Small Business Association of America (SBA.gov).
- Keep Good Records and Understand Available Deductions
Proper record-keeping year-round is the first step to ensure taxes are filed accurately. Save essential paperwork that could be needed to back-up deduction claims, should there be an audit. Keep it in mind that tax credits and deductions change each year.
- Avoid Common Audit Traps
It is very important to be aware of potential red flags which could include:
- Classifying Employees as Independent Contractors: Independent contractors and employees are not the same and it is important to understand the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes; non-compliance can bring penalties and back taxes.
- Home Office Deduction: This deduction is very specific and not all home-based businesses qualify. Know how to determine if you are eligible to claim this deduction and what specific expenses may be deducted.
- Large Sum Miscellaneous Deductions: If you claim a large amount of itemized deductions or miscellaneous expenses, relative to your income, the IRS could get suspicious. Be specific and label every deduction.
- Keep Business and Personal Expenses Separate: The IRS scrutinizes personal expenses that may have been claimed as a business expense, such as the use of a business vehicle, for personal use. Maintain separate bank and credit card accounts for your business and personal use. Be diligent about keeping good records.
According to the American Institute of CPAs, following these 8 steps will help small business owners be sure they pay no more taxes than you’re legally required to pay. Here is a look:
- Expenses. Keep a daily diary or log of your expenses throughout the year. It will be less intimidating to prepare your return and easier to identify all legitimate business costs if you have a log that’s up-to-date and detailed.
- Deductions. One of the principal reasons small business owners pay more taxes than necessary is that they don’t take advantage of all of the deductions they’re legally allowed. That often happens because they can’t prove they are qualified. The most common deductions for small business owners include entertainment, travel, meals, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records.
- Traps. A small business owner may do some things that are more likely to get IRS attention than others. For example, claiming deductions that exceed your income for more than one year is a definite red flag. The home office deduction, which is allowable only under specific circumstances, may be another red flag. That’s not to say you shouldn’t claim every deduction you’re entitled to claim, only that you should be especially careful when you do so.
- Retirement. You must have earned income each tax year to qualify for a tax-deductible retirement plan. If you do, the funds paid into the retirement plan are deductible and they may also grow tax-free until retirement.
- Payroll. One of the most common and costly tax-related problems for small business owners is that they use the payroll taxes withheld from employees to finance business operations. Not only does the IRS often go after a small business owner’s personal assets to collect the unpaid payroll taxes, but it also may attempt to assess significant penalties.
- Veterans: An expanded tax credit is available to business owners who hire certain unemployed veterans. Don’t overlook the credit if you hired a qualified veteran. The IRS website has details.
- Contributions: Many small business owners donate goods or out-of-pocket expenses to charitable organizations throughout the year. Be sure to get a valuation for any non-cash items your business donates to charity so you’ll have the records you need to support the deduction for your contributions.
- 8. Help. If you are unsure about anything related to your tax obligations under the law, you should seek professional help from a certified public accountant. Meeting with your CPA quarterly to go over your specific situation will allow him or her to best advise you on what to do to keep your tax bill, and the stress over it, as low as possible.
Other points to ponder:
Your clients’ taxes affects your taxes
Are you a business owner? Then remember, your clients, vendors and suppliers are going to report taxes and that affects you.
“The IRS compares your tax return against information in their systems including 1099’s received from clients of yours,” says Gail Rosen, one of the New Jersey and New York areas leading accounting firms, specializing in the tax and accounting needs of small and medium businesses and individuals. “If there is a mismatch, the IRS will send you a computer-generated notice assessing taxes due, interest and penalties. Therefore, I recommend you file your tax return carefully and make sure to include all income.
Affordable Care Act/Obamacare
According to Turbo Tax, a small-business owner can qualify for a 2014 health care tax credit of 50 percent if the business meets the following criteria:
- The average annual wages are less than $50,000 per person
- The business employs fewer than 25 full-time-equivalent employees
- The business contributes at least 50 percent to the employees’ self-only health premiums
- The health insurance is purchased through the Small Business Health Options Program Marketplaces.
The Small Business Health Care Tax Credit page on IRS.gov is packed with information and resources designed to help small employers see if they qualify for the credit and then figure it correctly. Additionally, the IRS has Health Care Tax Tips, designed to provide useful information to employers, families and individuals. These tips include a new Small Business Health Care Tax Credit tip as well as tips covering other Affordable Care Act topics.
Small employers should be aware of changes to the small business health care tax credit, a provision in the Affordable Care Act that gives a tax credit to eligible small employers who provide health care to their employees.
Need more time?
Taxpayers needing more time to determine eligibility should consider obtaining an automatic tax-filing extension, usually for six months. See Form 7004 for businesses and Form 8868 for tax-exempt organizations.