Tax season is undoubtedly difficult for many small business owners. Not to mention stressful. It seems like a race to scramble for receipts and gather collections of information together. Constantly worrying about an audit is never fun. Here are several ways to make filing small business tax returns easier for you.
1. Collect your records
Before any single tax form is filled out, it’s important to collect all business records. This includes balance sheets and accounting information regarding your business earnings and expenses. The crucial element here is to collect all relevant spreadsheets and tax income reports.
Less than 1% of all online tax returns have errors, according to the IRS. This is comparable to 21% errors caused by paper return filings. A professional bookkeeper can help you make heads or tails of tax-specific software. Programs you can use are Mint, Quicken (mentioned previously) or TaxSlayer. Tax software lets you attach business accounts and bank accounts, which are then calculated into your total expenditures.
3. Right Forms
Do you know the difference between Form 1065, Form 1120, Form 1120S or a Schedule C? Partnerships, sole proprietor, and corporations must file separate forms as it relates to their ownership of a business/company. The IRS provides useful tables of tax forms relevant to each business type. As they state, partnerships require Form 1065, proprietors must fill out a Schedule C, and elected S Corporation Status companies must use a Form 1120S. Figure out which form is right for you.
Despite popular belief, home office deductions are not penalized by the IRA. When filled properly, they will not mark you as a suspicious threat who needs to be audited. This is because owners who have a home office that is genuinely a home office will receive thousands of dollars in deductions. Tax attorney can help you to make sure you don’t miss any of such deductions. To qualify, however, there must be indisputable proof that the space in your home is used for nothing else except office work. This means that a spare bedroom or storage room does not qualify as an office. Deductions include $5 per square foot of office space – with a limit of $1,500 in deductions.
5. Retirement Plans
Self-employed workers and small business owners are undoubtedly more focused on retirement planning options than average business owners. It is important to pay your 401(K) with cash balance pension plans in order to maximise the amount of contribution. You can still contribute to Traditional IRA plans. In the rat race of keeping your business alive, it’s important to pay your retirement plan.
6. Automobile Deductions
Do you have a vehicle? Did you know you can deduct auto expenses when that vehicle is used for business-related purposes? To receive this tax benefit, your vehicle must solely be used for business – and this must be proven. According to the IRS, calculating the standard mileage rate or the calculating the actual expense are two methods you can use to see if you qualify.
Business expenses can include insurance premiums as they relate to property, malpractice and liability. You even may also be able to deduct premiums that paid for medical and dental insurance – if you’re the business owner of sole proprietorships, partnerships or an S Corporation. The point is: tax season doesn’t have to be grueling hard work. Figuring out what you need to know now, in anticipation of filing tax returns, will make the process smoother.