If you’re a small-business owner, chances are you’re spending way too much time on taxes or money on an accountant to help you out.
According to the National Small Business Association, 64 percent of business owners spent more than 40 hours per week last year dealing with federal taxes (up from 57 percent in 2011), while spending more than $5,000 to complete their tax forms and ship them off to Uncle Sam.
The NSBA says that’s because the tax code is way too complex, and small-business owners have few options in trying to simplify things and keep their tax liabilities to a minimum.
Now the American Institute of CPAs rides to the rescue with tax tips designed to make life easier for entrepreneurs and business owners:
Keep track of expenses. To streamline the tax process and make it easier for either you or your tax specialist to get the job done, maintain clean expense records. Make sure your expense log is kept up to date and is detailed — the more detailed the better. QuickBooks has a handy online expense tracking tool included in its online accounting system for small firms. It’s free for 30 days, then $12.95.
Don’t overlook common deductions AICPA says way too many small-business executives don’t bother to claim some easy deductions. Topping that list are entertainment, travel, meals, home office and health insurance.
“Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records,” the group says.
Watch out for IRS “red flags.” Small-business owners are natural targets for the IRS. They tend to estimate their tax payments and take more deductions than the average American. So it’s good policy to avoid the things the government looks for that can trigger a tax audit. The AICPA says that claiming deductions that exceed your income for more than one year is a definite red flag. Watch out also for the home office deduction – the IRS watches that one closely, as it is allowed only under “specific circumstances.” The watchword here is caution. Explore every possible deduction, but know which ones the IRS tracks closely.
Don’t hold back on payroll taxes. The federal government frowns on small-business owners who take payroll taxes earmarked for the Treasury Department and uses them to pay for business operations, AICPA says. “Not only does the IRS often go after a small-business owner’s personal assets to collect the unpaid payroll taxes, but it also may attempt to assess significant penalties,” the group notes.
Take full advantage of new health care insurance loopholes. So you pay for your employees’ health insurance? Great. Just make sure to check if you’re eligible for the small-business health care tax credit. AICPA advises talking to your tax specialist or visiting the IRS Web page dedicated to the tax credit.
The group advises small-business owners to meet with their accountant or tax professional regularly, at least every quarter. It’s no fun, but like keeping your car maintained or heading to the dentist for a regular checkup, it can sure save you a lot of pain down the road.