4 Ways Small Businesses Can Get a Jump Start on Their Taxes Before EOY

By Richard Lavina, Cofounder and CEO, Taxfyle

Small business owners and entrepreneurs have a lot on their plates. From increasing profits and hiring the right employees to juggling all the on-boarding and administrative duties, such as taxes, benefits, training, equipment and more – a myriad of weighty responsibilities rests on their shoulders.   

No matter how many hours are spent preparing, there will always be fires to put out. But the good news: your taxes don’t have to be one of them. Here are four ways to ensure a head start on taxes before end of year, putting your business in good stead for April.  

Ensure Accurate Records

First and foremost, it’s important to make sure your accounting records are in order. Tax records are a legal requirement for running a business and should be kept for seven years. These records include information about sales, expenses, income, assets and liabilities — not only giving you the tools you’ll need fill-in your tax returns, but also allowing you to manage your business and help it grow.

Start by creating a general ledger report and making sure it reconciles to zero — all expenses, assets and revenues should be accounted for. As the proverbial saying goes; “garbage in garbage out”. If you don’t have accurate numbers, then your deductions will be off.

Avoid Common Pitfalls

If your business fails to comply with tax laws or filing requirements, these mistakes can be costly. For example, the IRS can apply an accuracy-related penalty if it discovers negligence in reporting all of your income, or a late fee if you fail to pay an income tax bill on time.

It can be especially easy to focus on the company’s finances and let other responsibilities like issuing 1099’s and W2’s fall to the wayside. However, employers should make every effort to avoid this pitfall and get the forms out as early as possible. Companies must be aware that their timing on these documents affect each individual trying to file their own taxes as well, and they can’t start until they have their documents.

Think Twice Before Deducting

While homeowners (and renters) can define a space within their home as a section used regularly and exclusively for work and are entitled to a deduction for the homes prorated expenses related to the defined area, this deduction is one of the biggest red flags for the IRS when it comes to small businesses.

The tax code is very clear and specific as to what qualifies as home office space and first time business operators historically have been aggressive when it comes to the space they feel doubles up as business use. The “exclusivity test” means that the space cannot be misconstrued to serve any other purpose. For instance, if a computer is setup on your kitchen table, it’s a difficult argument to make considering the nature of the area’s personal use. Think twice before deducting any home square footage as a business expense.

Plan, Plan, Plan

Tax planning is so important for those individuals who receive any income outside of a W2. If you make any 1099 income, for example, consider consulting a professional or research the amount you should be paying to the government every three months (that’s every quarter). This way, you can manage your tax liability and not face a huge bill at the end of the year.

Finally, while uncertainty is a huge hindrance for small businesses – your taxes should never be a surprise! Stay up-to-date about the latest tax laws and keep your records organized in advance of April. The President Elect has proposed several changes to tax policy that may impact businesses. For more comprehensive details on the ins and outs, check out “What Trump Presidency Means for U.S. Tax-Payers.”

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