Tax time prompts many small business owners to stop and reflect on the previous year. How much you pay in taxes is not only an indication of your company’s performance over the past year, it’s also a gut-check on your tax preparation methods.
Did you make the most of your available deductions? Can you do anything to make the next tax season easier? Do you have the right accountant? Much like the new year presents an opportunity to start fresh in our personal lives, April can be the perfect time to adopt better financial and management habits.
Here are some last-minute tax tips will help any small business successfully get through this April 15, and hopefully ensure next year’s process goes a little bit smoother.
1. Know how your business is organized: Sole proprietorship, partnership, S-corporation, LLC or C-corporation – the way a business is structured makes a big difference when it comes time to pay Uncle Sam. Keep in mind how your business is organized so you file the proper tax forms and get the deductions you are entitled to.
2. Know what you’re entitled to: Depending on your line of business, there are industry specific deductions you can make. Know what deductions you are entitled to and don’t leave money on the table. Whether it be home office deductions for a freelancer or a therapy dog for a physician, some things are deductible that you may not consider.
3. Make sure you have documents to support your deductions: If you were to be audited, do you have the substantiation to survive? A cloud-based accounting service is a good way to organize and store your receipts, so if the IRS calls you up in three years, you have the documentation you need to back up the deductions you claimed.
4. Ask your accountant the right questions: Do you owe quarterly taxes? Do you have multistate tax issues, which are very common with a distributed workforce? Does your company employ contractors? Use 1099s? Does your company hire foreign workers?
Make sure you ask your accountant the right questions so you’re both on the same page. According to my company’s recent survey of 400 accountants, more than half believe the top mistake small businesses make is not communicating with their accountant year round, sparking miscommunications and missed opportunities for deductions.
5. Consider your future. Just because you are rushing to file by the deadline, don’t forget about retirement planning. Do you have a way to defer income? A 401k? Self Employed Pension, or IRA? Do you know how much you should be saving? Many business owners forget that this is an area in which accountants can help them.
6. Keep track of independent contractors versus employees: Bringing on an independent contractor instead of an employee can help small firms save on FICA taxes. But many employers run into tax and even legal trouble by misclassifying employees as contractors, so familiarize yourself with the difference between the two. Also, have your contractor complete a W-9 form for tax purposes before issuing them their first payment.
7. Take advantage of the section 179 depreciation deduction: The Section 179 depreciation deduction lets business owners deduct newly purchased property or equipment all at once, instead of incrementally writing-off the annual depreciation amount each year. It can bring huge tax savings for companies that launched in 2013 and had to purchase a great deal of start-up equipment. Be sure to consult your advisor on how you can take advantage of 179, especially since its conditions change from year to year.
By maintaining open communication with your accountant, and by incorporating some of the steps above, you’ll not only be prepared for tax season, but you should glean a better overall understanding of your company’s financial health, too.
And last but not least, if you are overwhelmed, don’t forget you can always file an extension. It’s not an extension to pay but an extension to file, and it’s a great opportunity to make sure everything is correct and avoid the last minute frenzy.
Jody Padar is a partner at Xero and the chief executive and principal of New Vision CPA Group near Chicago, Ill.