For small businesses, tax season isn’t confined to April. Without the right preparation, you risk higher costs and greater stress when it comes time to write that check to the IRS. Don’t let tax season sneak up on you this year; follow these tips to stay prepared and free of stress throughout 2017.
1. Always Keep Your Business and Personal Expenses Separate
No matter the size of your company, it’s vital to maintain separate expense accounts and records for your personal spending and business activities. Your business should have its own credit cards and bank account. This will make it much easier to keep track of business expenses and provide a clear paper trail if you do get audited. If you haven’t been diligent about separating your expenses, take some time at the beginning of the year to put this into action. This is especially important for sole proprietors and other very small businesses. It can be a challenge to justify some business expenses if they seem too closely related to your personal expenses. Doing the work of cleanly separating your business and personal money at the outset of the year helps establish a firm foundation for later.
2. Don’t Overlook Business Deductions
There’s no reason to be shy about taking the business deductions that you need. These deductions exist for a reason, and missed opportunities can hit your wallet hard. Some commonly overlooked business expenses include: • Insurance premiums, such health and business liability insurance
• Auto maintenance and mileage
• Business-related meals and entertainment
• Home office expenses even if you only work from home some of the time
Here’s a quick tip that many people overlook: When it comes to deducting meal expenses, the IRS draws a distinction between business entertainment and meals of convenience for an employer. You can deduct 50 percent of entertainment expenses, like the catering for your company party, but you can deduct 100 percent of convenience meals. For example, if you need your staff to stay late to work on a project and you order pizzas for the team, that cost may be fully deductible.
3. Remember Your Section 179 Deductions
Section 179 of the tax code allows you to deduct up to $500,000 in equipment expenses the year that you purchase them rather than making deductions for depreciation over time. If you have just started a new business, this can provide a major opportunity to save on taxes. There are benefits and drawbacks to taking advantage of Section 179. You can use a tax calculator to compare the amount of an all-at-once deduction against the long-term deduction for depreciation and decide for yourself which strategy makes the most sense for your business.
4. Make Sure Your Business Structure Offers the Best Financial Benefits
There are multiple ways to structure a business, from a partnership or an LLC to a C-corporation or an S-corporation. Different business structures will offer different tax benefits. Depending on the size of your company, the amount of revenue and the current tax climate, changing your business structure may be extremely beneficial. For example, you may be able to restructure from a C-corp to an S-corp to avoid some corporate taxes. It may be worthwhile to consult with a CPA about the possibility of restructuring your business in 2017 to take advantage of the tax benefits a new structure may provide.
5. Pay and File on Time
It may seem obvious, but ensuring you file your taxes on time can save you a lot of effort, money and heartache. Being organized and thinking proactively about your taxes will help you ensure that everything is ready in time to file and that you pay what you owe. When you file on time, you avoid:
• Penalties for late filing
• Penalties for late or incomplete payment
• Interest fees for late or missing payments
Being prepared can also help you foresee problems and find solutions for them before they turn into bigger issues. For example, you may discover that you do not have enough money to cover your tax bill for the year. Knowing this in advance allows you to pursue government assistance programs that can help you reduce penalties or obtain assistance with managing your company’s finances. If you begin preparing your taxes at the beginning of the year and realize that you will have trouble paying them on time, go ahead and file anyway. By filing on time, even if you can’t pay the tax bill, you prevent additional fees from accruing and can begin the process of negotiating a payment plan.