Are You Prepared for Your Small Business Taxes? Tips to Help You Save
Many small business owners become frazzled around tax time and as the year comes to a close, they know it is time to start gathering their tax documents and preparing for a hectic couple of months.
While tax season is right around the corner, you need to sit down and make sure that you are claiming everything you can for your small business. In addition to claiming deductions and credits, you need to be prepared for tax time as well. Below, we will go over some helpful tax tips that will get your business ready for tax time.
While it may seem like a daunting tax, you need to keep track of all of your business expenses. You should create a folder and keep all receipts related to an expense in it. These expenses include new office furniture, meals, trips, gas, and more.
In addition to keeping the receipts, you need to have a separate bank account for your business expenses. You should NEVER mesh your personal and business bank accounts together as this can cause a whirlwind of trouble come tax time.
As a quick tip, consider creating an Excel document where you can enter in your business expenses and the date the purchase was made. The Excel sheet will help you stay organized throughout the year.
If your business is in the position to purchase new equipment, consider buying energy-efficient systems as you may qualify for a tax credit if you do.
The business energy investment tax credit is available to businesses who install qualifying equipment in their company. The credit allows business owners to save up to 30 percent of the cost on fuel cells, solar, and small wind technologies.
If you do not own your building, but rent it, you can qualify to receive a tax credit that reduces your energy usage. The credit works wonders for many small business owners. For example, if you reduce your energy usage by up to 50 percent, you can deduct as much as $1.80 per square foot of your building, which equivocates to $3,600 for a 2,000 square foot building.
If you are running your business as a sole proprietorship, you may want to consider forming an S-Corp, especially if your income is more than $500,000 for the business.
If you file a Schedule C or 1040, you will face a larger self-employment tax when it comes time to pay taxes. If you file as an S-Corp, you will need to take an income for yourself on a W-2 and allow the remaining money to be claimed on the 1040. The amount on the 1040 will not be subject to self-employment tax.
You are able to claim business-related gas and car expenses on your tax return. If you did not know this deduction existed, you may not have been claiming it this whole time.
There are two different acceptable methods to get the amount of your gas/car deduction. You should try both of the methods to see which one yields a higher deduction for you. Whichever number is higher is the one you should claim on your business taxes.
If you need help doing the math and figuring out which method you should use, talk with your local tax agent. He or she can help you figure out which deduction method works best for your small business.
Many tax credits exist for small businesses, but if you do not explore what is available, you may not be claiming as many as you can. For instance, the Work Opportunity tax credit was extended and businesses can claim this credit if they hired individuals who face a higher unemployment rate.
Another tax credit that small businesses overlook includes the New Markets tax credit, which provides incentives for business owners who open their businesses in lower income communities.
The above five tips can help you prepare for your taxes this upcoming year. If you need help filing your small business taxes, speak with a tax professional who can guide you and help you fill out the correct forms. Claiming all of the available tax credit and deductions can help you on your taxes.
Financial Balance LLC