5 Solid Tax Tips for Filing as a Small Business
- The IRS Small Business and Self-Employed Tax Center which has all the forms and information you will need for filing your taxes.
- The Small Business Association Filing & Paying Taxes page which will help you figure out your state and federal tax obligations.
- The IRS Small Business Taxes Virtual Workshop video series which walks you through everything you need to know about small business taxes and tax forms.
While you learn the basics, we also wanted to help you out with some upper level tax tips to keep in mind as you're filing this year. These tax tips come to us from Candace Klein from Dealstruck who has the following advice for small business owners who are filing taxes.
By Candace Klein, Dealstruck
Keep good records.
"When starting a business, it is tempting to cut corners to save money and unfortunately, many business owners think that skimping on accounting is an easy way to save a few bucks." She warns, however, "The reality is, that decision will cost much more in the long run. In keeping a good relationship with the IRS or even when applying for small business financing, organized, accurate, and easy to find taxes and documentation are crucial. If these things are needed and a business owner isn't prepared, it will take a great deal of time and money, often in the form of hiring tax professionals, to clean up the mess."
It is imperative to keep good records and keep them organized and easily accessible for at least seven (7) years. “We always encourage our borrowers to consider a professional bookkeeper as an investment in their companies rather than an expense since it will save them headaches and hassles when it comes time to file taxes or to apply for business financing, their documentation is ready to go,” Klein advised.
Don’t report a loss every year.
If your business show losses for two out of the last five years, the IRS is likely to want proof that this is actually a business and not a hobby. If the IRS determines the venture to be a hobby and not a business, all deductions will be disallowed. There are legitimate instances when businesses face a few down years, but if that’s the case, it is up to you to prove it with supporting documentation.
Use Schedule C wisely.
The “Schedule C” is an IRS form on which a business owner details business profits and expenses. These expenses are used to reduce taxable income. Excessive reported expenses can pique curiosity about your return and result in increased scrutiny. According to Freshour, “These are valuable deductions for small business owners. The key is to keep detailed records as you go through the year, classifying the expenses. And of course, hang on to the receipts.”
Don’t avoid taking legitimate deductions to which you are entitled. Instead, report accurately and make sure that you have the proper documentation to justify each deduction should the IRS come knocking.
Home office write off needs to be warranted.
Home offices have a reputation as a red flag trigger and in the past, this was a complicated write off. In order to make it easier for small business owners, the IRS simplified the method for claiming this deduction, but don’t interpret that to mean they have loosened standards. In order to qualify, the office needs to be a completely dedicated space that is used solely for your business. A desk in the corner of your bedroom or the kids’ playroom doesn’t cut it. Another IRS risk arises when you claim a home office but have separate office space elsewhere.
Vehicle deduction of 100% is rarely a good idea.
Face it, unless this is a vehicle that is parked at a separate business location and used only for business related purposes, like deliveries or service calls during operating hours, it is unlikely that you never use it for personal reasons. Especially if you have no access to another vehicle. If you will claim this write off, ensure that you and your employees keep detailed mileage logs and records of dates and purpose for each trip taken in the vehicle.