The following is a guest post by Jayson Mullin.
With its ever-changing rules and confusing deductions, tax season can be extremely stressful. This is especially true for small business owners, as many of them do not fully understand their tax obligations. However, if you are a small business owner, read on for some valuable tax tips to help you get through this frustrating time of year.
Keep consistent and complete financial records
One of the most common mistakes small business owners make is that they don’t keep track of their expenses throughout the year. You must keep close track of any expenses related to your business and enter them into some form of accounting system. Cloud-storage technology is a great way to accomplish this.
Another common mistake many small businesses make is failing to keep track of payments to outside contractors and vendors. If you paid any of these people more than $600 in total in a year, you must send them a 1099-Miscellaneous form. As such, whenever you pay outside professionals, make sure you keep complete records.
Start-up costs, equipment and inventory
If you start your business in the year you file your taxes, you can deduct up to $5,000 for start-up expenses and $5,000 for organizational expenses. Additionally, you may be able to deduct up to $500,000 in equipment costs as long as your business spends less than $2 million on parts annually.
If you have to repair any equipment during the year, the repairs may also be deductible. Finally, if you have any unsold inventory at the end of the year, consider donating it instead of storing it. Thus, you can enjoy a tax deduction. However, donations over $500 have strict reporting guidelines.
Training costs and professional fees
If you incurred any training or educational expenses during the year to improve your or your employees’ job skills, you can deduct those expenses on your tax return. These costs may include, but are not limited to, college courses, community-offered classes, seminars, and conventions.
Additionally, if you have to pay a professional for their services, these expenses may also be deductible, as long as the services provided help your business in some way. Services of consultants, tax professionals, notaries or doctors are tax deductible
Payroll taxes and employees
Perhaps the most common mistake small business owners make today is that they use their employees’ taxes to fund their operations. You’ll never do that. Not only will the IRS go after your personal assets to collect this money, but they can also assess you with large penalties.
If at all possible, consider letting your children and/or spouse help with your business instead of hiring employees. Thus, the money you pay to your family is not taxed in the same way as outside help. Additionally, if you hire your family, you can also deduct their health care expenses.
Other useful tax tips for small businesses
These are some of the top tax tips for small businesses today. Other things you might want to check out include deductions for things like business-related meals, travel, moving expenses, home-based office and retirement plans. When you use these valuable tips, you’ll have no problem getting through that dreaded tax season.
Get more: 6 Sales Tax Myths, Fasted
Jayson Mullin is a partner Top tax defenders. They offer tax resolution services including asset forfeiture protection, audit representation and customized tax planning.