If you are a small business owner or entrepreneur, chances are you aren’t taking full advantage to tax strategies to lessen your tax burden. Or, perhaps you aren’t following the letter of the law in regards to payroll taxes and filing requirements. Here are 5 tax tips to help you adhere to the law while taking advantage of deductions to help your business thrive.
- File federal and state taxes on time! And, if you can’t, for whatever reason, file for an extension. It is better to file an extension and take the time you need to properly and accurately file your taxes, than to rush through, making mistakes, or missing deductions. Developing a good organizational pattern, where each week, you file receipts, and keep track of expenses, facilitates filing taxes on time. Then, when it comes time for filing, everything is at your fingertips to do your taxes or to give to your small business accountant.
- Pay payroll taxes! Unfortunately, many small business owners fall into a trap where they divert the funds from payroll taxes to operating expenses. This leads to many problems including with the IRS. Payroll taxes are calculated based on a percentage of salary and wages paid to employees. Follow your state’s tax requirements and be sure to deposit the funds withheld from employees as directed. Payroll services are available, and can help you stay on track with payments and proper employee deductions.
- Learn about Nexus! If you are selling goods or services in a state outside of your local area, you may still be responsible to collect and pay tax on your sales. The term Nexus is a legal term meaning sufficient physical presence. Legislators and the IRS are looking for more ways to capture revenue from online retail companies. It is imperative that you know if you are responsible to collect and pay sales tax. Rules vary from state to state; contact your small business accountant to learn more.
- Double check deductions! If you have a home office, you may be eligible for a deduction. However, there are limitations. To deduct for home office space, designated space must just be used as a home office. This means a computer in the dining room, doesn’t qualify. Also, be sure you are deducting for general business expenses, entertainment costs, mileage, and all other deductions that can help you lower your tax bill. Contact a tax accountant to help you determine the best deductions for your small business.
- Depreciate! Rules vary on depreciation rates, depending on tax status, as well as the item being depreciated. Regular depreciation of office equipment, furniture, and other expenses may be able to be spread out over 5 or more years. But, don’t overlook bonus depreciation that may allow you to deduct 50% immediately.
As a small business owner, your primary focus should be on building and operating your business, nurturing customer and vendor relationships, and managing the day-to-day operations. Filing corporate returns, payroll taxes, and sales taxes is a challenge. Don’t let yourself get stuck in the minutia that can derail your primary mission of building your business; hire an accountant with extensive small business experience for best results.
