A Survival Guide to Small Business Taxes

Thursday Jan 29th 2015 by Jamie Bsales
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Nothing can make doing your taxes enjoyable, but we can offer small business tax tips, tools and advice to make your tax season a lot less painful.

The more things change…the harder it becomes to do your small business taxes. Between the Affordable Care Act coming into full effect, on-again/off-again/on-again tax credits gurgling out of Washington, and even a shakeup of the venerable TurboTax product line, this year—more than ever—small business owners need guidance and support as April 15 approaches.

We've gathered advice from industry experts on what to look for—and to look out for—this tax season. Plus, we list tools and resources to help you—both now and in tax seasons to come.

Changes in Small Business Tax Regulations

The government mostly taketh away, but sometimes the government giveth. Mike Trabold, director of compliance risk at Paychex, identified tax provisions that small business owners should pay attention to when filing paperwork for 2014 and when looking ahead to 2015. As a leading provider of payroll, human resource, insurance and benefits service for more than half a million small businesses, the team at Paychex has had their hands full keeping tabs on the changes. According to Trabold these are the most notable.

· Health Care Tax Credit for Small Employers

Part of the Affordable Care Act, this provision allows qualifying small businesses to get a tax credit for health premiums paid on behalf of employees. Employers can apply to receive a tax credit on their annual business tax return (or Form 990-T for tax-exempt businesses).

Changes in small business tax regulations

In 2014, the maximum amount of the potential credit increased to 50 percent (35 percent for tax-exempt businesses) of an employer's contributions to health coverage. Additionally, beginning in 2014, the small business tax credit is limited to two consecutive years and available only to eligible businesses that offer coverage to employees through the Small Business Health Options Program (SHOP).

· Tax Extenders

In December, President Obama signed into law the Tax Increase Prevention Act of 2014, and in doing so expanded approximately 50 tax breaks retroactively through December 31, 2014. For now, it's a short-term extension of tax breaks covering such things as bonus depreciation and accelerated expensing of certain asset purchases, but Congress may extend them yet again to cover 2015 occurrences.

· FUTA Credit Reduction

The Great Recession's high unemployment rate left many states' unemployment insurance coffers empty. The Federal government stepped in with loans to cover the shortfall, but it's time to pay the piper—and for employers in states that are overdue paying back the Fed's strings-attached largesse, employers may foot some of the bill.

Employers in debtor states will continue to have their FUTA (Federal Unemployment Tax Act) credit amount reduced as a way to pay back the outstanding debt, so employers in the impacted states should plan to pay higher FUTA taxes for tax year 2015 (due in January 2016), and may want to consider planning for the additional tax amount early in order to avoid an unexpected tax expense at the end of the year.

· Energy Investment Tax Credits

If your small business purchased an alternative-energy system such as solar panels, fuel cell, or wind generator, you may qualify for business energy tax credits. The Energy Improvement and Extension Act of 2008 extended the Business Energy Investment Tax Credit (ITC) by eight years.

You can take advantage of this credit for the 2014 filing year for any systems installed by December 31, 2014. Still want to get green for going green? Credits are available in the respective tax year for systems placed into service on or before December 31, 2016.

· New 401(k) Plan

Small businesses that started a new 401(k) plan can claim a federal tax credit for the first three years of the plan to offset plan startup costs. Eligible startup costs include those necessary to set up and administer the plan, as well as those to educate employees about the plan. A percentage of contributions made by the employer are tax deductible as well.

· Deduction for Working from Home

If you run your business out of your home, you already know that you may qualify for a home-office deduction. Last year, the IRS introduced a streamlined option that reduced many of the recordkeeping requirements for this tax credit. But you aren't locked into that one-size-fits-all deduction; if you're willing and able to maintain the paperwork substantiating all your expenses, you can still apply for a bigger deduction.

· Taxation of Online Sales

This is likely to be an issue that affects many small businesses for tax year 2015, noted Trabold. To level the playing field between brick-and-mortar retailers and online merchants (and to address state concerns about lost revenue), the U.S. Senate passed the Marketplace Fairness Act in May 2013. This would have allowed states to collect sales tax on purchases made by state residents regardless of the seller's location. The bill stalled in 2014, but because of the amount of revenue at stake, businesses should expect this legislation to be resurrected this year.

More Tax Regulation Changes for Small Business

A leading professional services firm specializing in accounting, technology, investment banking, and advisory services, Sikich LLP also keeps abreast of tax-law changes for its clients.  George Malina, the company's partner-in-charge, accounting services, provided other valuable small business tax tidbits.

· Tangible Property Regulations

The new tangible property regulations go into effect for tax years beginning on or after January 1, 2014. These regulations govern whether a taxpayer is required to depreciate or take as a current deduction expenditures such as the purchase of a new desktop computer or the installation of a new VoIP phone system.

Almost every business should have put in place a fixed asset capitalization policy effective prior to the start of their fiscal year that began on or before the effective date, or otherwise risk being required  to depreciate de minimis small items such as memory upgrades or inexpensive peripherals rather than taking them as a current expense.

Every taxpayer will also be required to address these regulations when they file their tax return for the first year in which these new regulations are put into place. Business owners will need to determine how they will indicate compliance with the new regulations when they file their tax return.

On one end of the scale, some taxpayers may be able to insert a simple statement as part of their tax return, while others may need to prepare and file one or more IRS Form 3115, Application for Change in Accounting Method. Incorrectly complying with these new regulations could result in the permanent loss of future tax deductions.

· Out-of-state Sales Taxes

States lose an estimated $23 billion in sales tax revenue as a result of out-of-state purchases and have responded by significantly increasing their audit activity as they look to recapture this lost revenue. It's important that businesses review their out-of-state purchases to determine if sales tax was collected and, if appropriate, self-assess and pay that tax.

Common general ledger accounts to review include fixed assets and office supplies, but business owners should then drill deeper to the vendor level to determine which invoices to review. In most cases, business owners will be able to determine which vendors don't charge sales tax and which will let them collect this data throughout the year rather than doing it along with the chore of income tax filing.

7 Small Business Tax Tools and Resources

These seven tools and resources can help simplify and organize your business finances and make tax time easier to bear.

1. Sage Accounting

The ultimate goal, of course, is to keep as much of your money as you can. The trick to that is a disciplined approach to accounting for expenses, notes Jennifer Warawa, vice president and general manager for Sage Accountant Solutions at Sage North America.

Sage 50 Accounting

Figure 1: Sage 50 Accounting keeps tabs on all your business expenses so you'll have your deductions all lined up come tax time.

"The biggest mistake small business owners make is not keeping track of their expenses throughout the year," says Warawa. "Trying to gather every receipt or sorting through a shoebox of receipts when it's time to file is highly inefficient and can make tax time even more stressful and potentially more costly. The bottom line is you can't deduct what you can't document, and failing to record as you go most likely means you're forgetting expenses and leaving money on the table."

An accounting package is key to this record-keeping, and Sage 50 Accounting (starting at $269 per year) is tailored to small businesses. Sage 50 lets you track all the money that comes into your business and all the money that goes out, with invoicing, bill pay, and inventory management. It also handles payroll processing, and tracks your payroll taxes so you are always in compliance.

Prefer a cloud solution? Then consider Sage One (starting at $14 per month). It offers invoicing, quote generation, contact management, bank integration and, of course, income/expense management in a convenient no-installation, access-from-anywhere platform.

2. Neat Smart Organization System

You can also track potential deductions by digitizing receipts, which makes them easier to organize and find come tax time. That's where the Neat Smart Organization System ($399.95) comes in.

NeatDesk

Figure 2: The NeatDesk Scanner works with the included desktop software to capture paper documents (like receipts), file them, and make them instantly searchable.

The solution encompasses the NeatDesk scanner and desktop software (available for both Windows and Mac), plus the company's Neat Cloud Service for storing and accessing files in the cloud. There's even a mobile app component that lets you capture expense receipts on the go.

The software's InDocument Identification Technology automatically reads and extracts key information from your captured documents and virtually eliminates manual data entry. Plus, when you enter a receipt into Neat you can assign it a tax category to make IRS filing faster. Neat supports U.S. and Canadian tax categories for schedules A, B, C, D, E and F, and for various forms including 2106, 2441 and others.

The Neat system's fully customizable folder structure lets you build your folders in a way that works for you. And as tax time approaches, you can share those folders with your accountant.

3. FileThis

You might want to consider FileThis, an organizational tool that ranges from free to $5 per month. This online service automatically fetches your important documents (such as statements and tax forms) from leading third-party companies like American Express, Chase, Amazon, Fidelity and dozens more—no more logging on to those sites individually—and files them accurately in one convenient place.

FileThis

Figure 3: The FileThis service collects pertinent tax documents and online statements in one place.

You can send documents to a secure FileThis Cloud repository or to your preferred cloud storage provider, such as Evernote, Box, Dropbox, Google Drive and so on. It also converts collected documents to searchable PDF files, which lets you find what you are looking for and view files on just about any device.

4. ACA Advantage

The new IRS reporting requirements associated with the Affordable Care Act will likely create confusion among small business owners. First Advantage Tax Consulting, a nationwide provider that develops and implements strategies to reduce clients' tax liabilities, recently launched the ACA Advantage Self-Service Solution to help small business owners navigate the ACA's shoals.

The tool is built to ease the administrative burden many small businesses will face to attain (and sustain) compliance with the ACA Employer Mandate. It will also help them to efficiently and effectively fulfill the extensive IRS reporting requirements. And in addition to assisting with ACA compliance, the technology powering the tool compiles and tracks copious amounts of detailed data useful for talent management, benefits and tax compliance.

Convenient features include automatic alerts when individual employees hit key compliance thresholds and easy-to-generate and interpret trending reports that warn of emerging compliance threats before they trigger penalties.

5. EFile4Biz

For many small business owners, processing 1099 and W-2 forms can be cumbersome and time-consuming. EFile4Biz eliminates the hassle by delivering comprehensive front-to-back form processing, starting at around $2.00 to $3.00 per form for small businesses. The online service handles printing, mailing and optional electronic delivery to recipients, as well as electronic filing with the IRS and Social Security Administration. It also integrates with leading accounting applications and services so you don't have to re-enter employee and wage information.

6. Intuit TurboTax

There's no sugarcoating it: Intuit unleashed a malestrom when it revamped its perennially popular TurboTax line. Their sin (according to legions of bloggers and online product reviewers) was removing the all-important Schedule C from the entry-level versions of the product, hence requiring sole proprietors and small businesses to step up to the more full-featured (and expensive) edition.

However, most small business owners in the do-it-yourself crowd likely already use Intuit's TurboTax Home & Business edition where the Schedule C resides, so the dust-up probably doesn't affect your plans. But it has worked to your advantage; to appease the online masses, Intuit dropped the price of TurboTax Home & Business from $104.99 to $79.99.

As before, TurboTax Home & Business will import last year's tax data from TurboTax and other tax-prep packages, so you don't have to re-enter things like your personal information and relevant business stats from scratch. It also uses last year's data as a sanity check to show you side-by-side what you told the IRS last year and what you're telling them this year.

You can plow through the forms manually, or let the program guide you through its step-by-step "interview" process, where you provide answers to straightforward questions and the software plugs the numbers into the appropriate forms in the background. TurboTax Home & Business can handle any 1099-MISC income (such as from consulting work) you might have, any rental property income, and of course the all-important small business income and expenses. It even includes both online-chat and phone tech support with U.S.-based operators. 

7. IRS.gov

And we would be remiss if we didn't give props to the good people at the IRS who try to make things easier for small business filers. Check out the Small Business and Self-Employed Tax Center area of the IRS.gov site, where you'll find a synopsis of changes for the given tax year, forms, webinars on topics pertinent to small business owners, as well as an A-to-Z index of topics.

Jamie Bsales is an award-winning technology writer and editor with more than 20 years of experience covering the latest hardware, software and Internet products and services.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!
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