Well tax season is here again! While many of us struggle just to keep our records straight, we need to take a moment and look at tax strategies available for the small business. Many of your members are small business owners, and it is important for them to understand how taxes affect their business, how to properly file their returns, how to avoid audits and how to claim the right tax deductions. After all, one of the first steps to achieving wealth is to lower your tax liability to the lowest legal possible amount. Here are some tips to ease the burden of the upcoming tax season and to help your members prepare for the April 15, 2013 deadline.
1. Keep Good Records and Understand Available Deductions - Your accountant may be able to advise you on the various tax credits and deductions that are applicable for the 2012 tax year, since their tax software programs are usually updated to ensure they don’t miss a single deduction. However, many accountants are overwhelmed this time of year and become focused on tax preparation and not tax planning. It is important to form tax strategies to help lower your liability. Your records should be kept as if you expected to be audited.
2. Utilize the Small Business Jobs Act Tax Provisions - The Small Business Jobs Act of 2010, signed into law by President Obama, has over 17 tax provisions to decrease tax burdens for small businesses. Several of these provisions may be taken advantage of during this year’s tax season.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Small-Business-Jobs-Act-of-2010-Tax-Provisions
3. Remember the Tax Credits within the Affordable Care Act – These tax credits will allow small businesses to recover up to 35 percent of the health care premiums a small business pays to cover its workers. In 2014, the tax credit will increase to 50 percent. There are also some tax benefits for small employers who reimburse employees for out-of-pocket medical expenses.
http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers
4. Avoid Common Audit Traps - Your accountant can assist you in ensuring you are not placing ‘red flags’ in your return. An example is classifying employees as Independent Contractors. Independent contractors and employees are not the same, and it is important to understand the difference. Here is the ‘test’ provided by the IRS.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-(Self-Employed)-or-Employee%3F
5. Home Office Deduction - Know how to determine if you are eligible to claim this deduction, and if you are, be certain you do it properly using this IRS guide:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction
6. Charitable Donations - Be specific and label every deduction on the check or receipt for non-cash donations. This link is the IRS Guide for non-cash charitable giving:
http://www.irs.gov/pub/irs-pdf/i8283.pdf
In fact, here is an online mini-course covering all IRS regulations with regard to charitable giving:
http://www.stayexempt.irs.gov/Mini-courses/Can_I_Deduct_My_Charitable_Contributions/can_i_deduct_my_charitable_contributions.aspx
7. Keep Business and Personal Expenses Separate - Maintain separate bank and credit card accounts for your business and personal use. This provides easier record keeping and makes your business expenses more defensible in the eyes of the IRS.
8. Learn the Laws that Govern Estate and Gift Taxing. Many small businesses and farms are controlled by families. It is important to learn tax law as it applies to transferring all or parts of the business to heirs. Without proper planning, large tax liabilities could be incurred. Here is the link to the IRS publications for estate and gift taxes.
As you see many members preparing for tax time, it is a good time to review the financing structure of the business or farm. Perhaps there is an opportunity to plan for future expansion or a need to refinance existing debt with better terms or structure. Feel free to contact us to help you serve your members.