Last-Minute Tax Tips for Small Businesses

SCE Federal Credit Union Provides Tax Tips for Small Business Owners

Mar 01, 2012 | Business

Tax season is here again, and small business owners often struggle to not only file properly to avoid audits, but also to work the tax code to their advantage. Despite all of the planning that takes place ahead of time throughout the year, Tax Day can still cause stress.

To help prepare for the April 15 deadline, here are some last-minute tips to keep in mind:

1

Get your records in order

This is one thing many small businesses fail to do and should be done throughout the year, not just last-minute. Keep a log of expenses and receipts, and keep it all in order. Doing this will not only streamline the process, but it can also save you time.

2

Understand your deductions

Know what deductions are available to you as a small business owner, and know what you need in order to prove them. Again, record-keeping is huge, and ALWAYS keep original receipts.

3

Avoid audit traps

  1. Classifying employees as independent contractors – A growing class of employee is the permalancer: someone classified as a 1099 contractor, who actually does the majority of his work for one employer. Having permalancers on board makes it seem to the IRS that the employer is trying to avoid payroll taxes, which is one of the more surefire ways to get your business audited.
  2. Questionable write-offs – Sometimes the line between business and personal expenses might seem a little blurry. For example, you take your family along for a weekend conference. Can you write off their portion of the plane tickets, meals and hotel bill? Unless they were working your conference booth, the answer is no. Even if they did put in some work hours, you still can't write off any leisure expenses for the weekend. If a write-off is questionable as a genuine business expense, then it's best not to try it.
  3. Miscellaneous expenses – According to the Wall Street Journal, a Schedule C with a sum total of miscellaneous expenses in the thousands will make the IRS suspicious. Keeping track of your receipts and classifying expenses throughout the year should keep you from dumping too many write-offs into this catch-all category.
  4. Home office deduction – Taking a deduction for a home office is a widely known audit trigger, yet some home office decutions are bigger red flags than others. If you take deductions for a commercial workspace as well as a home office, this may catch the attention of the IRS. Even home-based businesses should be careful about accurately claiming the portion of the home used for business, and the subsequent amount of rent or mortgage being deducted. Also be careful about the in-home expenses you write off. For example, your home phone line can't be written off, though a second line installed especially for your business could be.

4

Use helpful tools and programs

If preparing your taxes yourself, you may want to use programs like QuickBooks or websites like TurboTax.com to help cut down on time, frustration and errors. These programs can help you calculate income, expenses and credits, and will keep your information on file for future reference. Keep in mind that if you’re not completely up to speed on the tax codes, it might be best to pay someone who is.

5

Use the correct forms & double-check everything

Make sure you have all of the correct forms and that they are filled out correctly. IRS.gov offers small business owners a special section on filing and paying taxes, with helpful tips and forms.

Even if you're using a computer program or website to file, always double-check your return before sending it. Some common errors to avoid include:
 
  • Entering an incorrect tax amount from tax tables
  • Listing incorrect or incomplete Social Security numbers for the filer and/or dependents
  • Misspelling names or listing name changes not provided to the Social Security Administration
  • Using an incorrect form
  • Selecting the wrong filing status


If you’re afraid you won’t make the deadline and you file your taxes as an individual, you can request a 6-month extension using Form 4868, the Application for Automatic Extension of Time to File a US Individual Income Tax Return. But keep in mind that an extension only grants extra time for filing the return, not for paying taxes that might be due.

So what happens if you’ve completed your return but can’t pay the money you owe?
The IRS says you shouldn't file for an extension. Instead, file your return on time and pay what you are able. The IRS will send you a bill for the balance, and will "charge interest and penalties only on the unpaid balance," according to IRS.gov.

Don't be afraid to ask for help not only during tax season, but throughout the year. The vast majority of small businesses do seek out a CPA to file their returns, but professionals can also help you make smart decisions all year long that can pay off in the long run.
 
 
Be sure to contact a tax advisor to discuss your particular situation.