Those taxing taxes! And they’re inevitable, too. So rather than grouching, here are few pointers for you to stay afloat when it comes to doing your business’ taxes.
There will always be a few inconsistencies in the tax code as changes tend to be enforced especially with different political scenes, but to an extent the others remain fairly invariable. When you know what to expect, you can make better decisions for your business when you’re tax planning. Secondly, understanding the tax terrain makes you aware of what your accountant needs to be doing and where taxes are owed.
First and foremost, you need to think tax all year round, not just before it’s due. This way you are constantly aware of changes in the laws, and how to accommodate those changes without bleeding your potential revenue.
Tax credits influence successful business decisions
When you know what you owe where, you can plan around it, save money, know where you can spend and where you get tax breaks. Work with an accountant who specialises in your field of business. 70% of SMBs outsource tax preparation. 30% of them outsource tax planning. They can tell you which jurisdictions you owe taxes to. Sometimes you owe state tax, federal tax, tax related to employees etc.
If you apply for too many deductions the IRS and auditors will land on your tail. If you don’t apply for any, you lose money. You need to take proper legitimate measures to ensure your hard earned revenue stays in your business. For instance, ghost assets – assets no longer in use by a company, like out-of-use computers, broken office furniture etc. – generate higher personal property taxes and insurance bills and an imprecise evaluation of your business’ worth. If you didn’t know this you would be losing money because of the inaccurate appraisal of your business’ value.
Maintain your books properly
When money that is owed, money that has been spent, paperwork and receipts, payrolls etc. are in order, you will have a proper record to look at when understanding what finances demand taxation and categories for deduction, and you won’t be cast in with the lot of that 32% of SMBs that fail to set aside money for income tax.
There are also tax preparation software which efficiently import data from QuickBooks into the right categories required to track audit risks, provide an easy user interface, and support customer service.
Watch out for…
While preparing taxes, SMBs should watch out for a few things, like tax extenders, the Affordable Care Act and Online Sales Taxation to name a few.
As the name suggests, tax extenders cut you some slack. Section 179 of the IRS tax code allows SMBs to deduct the full purchase or lease price of qualifying equipment or software from the gross income. Bonus Depreciation allows owners to further depreciate 50% of the cost of depreciable items from the first year it is placed in service. The two incentives can be used together. Then there is research and development credit, work opportunity tax credit, energy production tax credit and so on.
The Affordable Care Act applies to companies with 51-99 employees and can penalise SMBs for not providing at least 70% of them with health insurance or failing to report what type of coverage has been provided.
Online Sales Taxation is still being debated and rebutted in legislation and may change the definition of who is a local tax payer.
The important thing to remember is to make the effort to remember and not make assumptions. Tax extenders may be passed at the last minute, but there is no assurance and you have no safety net to fall into should it be retracted.
Enlist the help of a professional who has a deeper understanding of the complex nitty-gritties of tax laws, and who can help you spot tax breaks and deductions you may miss on your own.
Rather than being overwhelmed, be prepared. Like Arthur Bishop says in Mechanic, ‘Amat Victoria Curam, Victory Loves Preparation.’