by Jessica Ambrose, on 12/13/19 9:45 AM
It's almost the end of the year and we all know what comes next: tax season! While this might not be the "most wonderful time of the year" for small business owners, we've come up with 7 tips and tricks to help you avoid the headaches.
1. Utilize tax software
No one likes paperwork; especially when it comes to taxes. This is why special software has been developed to help ease the tax process. Companies, such as H&R Block, offer software that can help file, save, and process all of your tax information. Errors can be time-consuming and cost you money. By using specialized tax software, the margin of error can be reduced to almost nothing.
PRO TIP: IRS reports less than 1% of errors with software filings, and 21% of errors with paper filings.
2. Save receipts
I know saying to save paperwork to do paperwork is just perpetrating more paperwork; but, it really is necessary. Make sure you have all your receipts and other documents saved in a location where you'll remember. A missing receipt can prove to be a big hassle later, when you’re filing your taxes. Keep anything to do with proving expenses, deductions, filings, etc.
PRO TIP: Generally, you should hold onto receipts for at least three years.
3. Deduct your home office
Many small business owners operate from their own homes. This small detail could prove to be a fruitful deduction when filing your taxes. Areas of deduction include: insurance, mortgage interest payments, repairs and utilities, and internet costs.
PRO TIP: The space must be used regularly and exclusively for your business in order to qualify.
4. Pay retirement accounts first
You started your own business because of the American Dream. Part of that dream is being able to retire. When filing your taxes, remember to put expenses towards traditional retirement accounts. Not only will you be adding to your retirement fund, but your taxable income will decrease as well.
PRO TIP: Roth IRA accounts have special income level restrictions. If your income level is too high, you can’t contribute to this type of retirement account.
5. Deduct your car expenses
While you're thinking about deducting your home office, consider the same for your car. If you use your car for business purposes, you might qualify for certain deductions like: mileage, repairs, and insurance.
PRO TIP: Vehicles used as equipment (dump trucks) or used-for-hire (taxis) do not qualify for this deduction.
6. Donate to charity
Who says nice guys finish last? Not the IRS! Depending on the amount of your donation, you may be able to receive some extra tax credit. Charity doesn’t have to be just money either, you can also give goods. Just remember to save the receipt and properly file it, in order to reap the benefits.
PRO TIP: To qualify for a charity deduction, your business cannot receive anything in return for the donation. Otherwise it will count as a regular business-related expense.
7. Start preparing now
If you’re reading this article then you’ve already begun this last tip. Preparation for tax season starts now. Even though most of us won’t start filing until late January to April, it is important for a small business to make sure everything is ready. Having all your ducks in a row will help prevent hassle and errors. Get started now, while you've got a glass of eggnog in your hand, and you'll thank yourself in April.
PRO TIP: Consider hiring a bookkeeper to keep personal and business related expenses separate and accounted for. Or, if you’re looking for a cheaper method, virtual bookkeepers and bookkeeping apps now exist that you can use yourself.