As April 15 quickly approaches, small business owners can avoid a lot of stress and a potential visit from tax auditors if they follow some simple advice.
We asked Jonathan Barsade, a former tax attorney and CEO of sales tax specialist Exactor, and small business financial expert and "Neatologist" Carrie Smith, for tips on surviving tax season as an entrepreneur. Here's what they shared.
5 Tax Tips for Small Business
1. Automate Your Taxes
Just as cloud computing drives the small business server closet to extinction, today's automated business tax services assume the burden of properly and affordably calculating and collecting sales taxes from multiple jurisdictions. The benefits are twofold.
First, tax automation lets small business owners expand their reach. Secondly, it "frees them up to focus on generating business," says Barsade.
And automated tax compliance solutions are now within reach of practically every budget, adds Barsade. "The technology is at price where small businesses can use it today." It may be too late for this tax-filing season, but it's something to consider going forward.
2. Be Wary of Tax Scams
Online crooks look for targets all year round, but there's an uptick in scams during tax time, warns Barsade. "Just like you wouldn't trust someone who comes to your door claiming to be tax preparer," take the same precautions with an email or other unsolicited communication.
Too-good-to-be-true offers could quickly turn into a nightmare. And yes, companies can fall victim to business identity theft. Many state websites keep lists of approved tax preparers and solutions vendors.
On the other side of the coin, don't try to pull a fast one on the IRS or state tax agencies. "Technologies allow tax agencies to shift through data to identify suspicious activity," says Barsade. In short, like a certain resident of the North Pole, Uncle Sam knows when you've been naughty or nice.
3. Start Tax Prep Now
You don't necessarily have to stop everything and dive right in, but it's important to get the ball rolling, says Carrie Smith.
Admittedly, there's still some time. But to avoid a mad scramble on April 14, Smith suggests taking a few steps to ensure that tax season goes without a hitch. At the very least, begin by gathering receipts into a box or file during your spare moments.
"I like to put everything into a specific file," says Smith, but whatever your preferred organizational strategy, the point is to get started.
Next make a checklist on outstanding items like uncategorized expenses, missing documentation and information you're still waiting for a client to produce. Tax-time success then comes from "creating an action plan for the next steps after that," to serve as a clear-cut guide for what needs doing and when. Finally, silence your inner procrastinator and make an appointment with a tax professional to create a deadline.
4. Tax Deductions Shortcut
Are you self-employed? The following tip will to help you get started on organizing your expenses and claiming the deductions you deserve.
While tax payers usually tackle their IRS forms at the end of the process, Smith makes an argument for paying at least one of them an early visit. "Print out the Schedule C form from the IRS and use that as a checklist," advises Smith.
"Include everything from how much you spent on business classes to your cup of coffee at a conference," she suggests. Always check with a professional—the IRS doesn't take kindly to lumping your pets or your family vacations into the pile—but you may be amazed by how much you can deduct while building your business.
5. Change, the Only Constant
It may not be your job to know the ins and outs of the tax code, but it's wise to keep up with at least some of the major tax changes that affect your business. There are at least two big topics this year that Smith says are worth exploring with your tax pro.
Small business owners will want to get an update on "the healthcare changes that have occurred over the past few years," she says. Retirement benefits are another area where tax implications keep shifting.
Ask your tax advisors "What's new?" It's a good way to evaluate them and make sure that they're staying current with the issues that affect small businesses. Also, verify that your tax preparer has a valid Preparer Tax Identification Number (PTIN). "If they don't have that, they cannot file for you," cautions Smith.
If you're looking for even more tax tips, we've got you covered.
Pedro Hernandez is a contributor to the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the Internet.com network of IT-related websites and as the Green IT curator for GigaOM Pro. Follow him on Twitter @ecoINSITE
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