Eight ways to keep your business tax healthy
(ARA) — The U.S. was home to 27.5 million small businesses in 2009 according to the U.S. Small Business Administration Office of Advocacy. To succeed, many business owners take on multiple duties, from executive and operational, human resources, to marketing and information technology.
Among the more challenging responsibilities is taxes. "Thankfully, you don't have to be an accountant to be tax-savvy," says Jessi Dolmage, spokesperson for TaxACT. "Just knowing where to go for information, keeping secure records and using robust tax software helps maximize business tax savings."
* Budget for tax deadlines to avoid cash flow disruption and meet deadlines to avoid penalties. Most self-employed people should complete Form 1040-ES to calculate and pay quarterly estimated tax payments. Corporations must also pay estimated payments if they expect to owe taxes of $500 or more. Businesses with employees are subject to different forms and deadlines based on business type and revenue, - i.e. Forms 940, 941 and 944. Corporations and S-corporations must file annual 1120 and 1120S tax returns by March 15.
* Define and pay labor properly. Employees require different paperwork than independent contractors. Withhold income, Medicare and Social Security taxes from employee paychecks and pay Medicare, Social Security and unemployment taxes for them. Conversely, issue independent contractors a 1099-MISC form if payments total $600 or more in a calendar year.
* Get familiar with small business tax benefits. For 2011, the deduction for business start-up costs is worth twice as much and phases out at a higher amount. Legislation also extended the increased deduction amount, phase-out limit and definition of Section 179 property. First-year bonus depreciation was also extended. For property placed in service after Sept. 8, 2010, and before Jan. 1, 2012, bonus depreciation is 100 percent. The Small Business Jobs Act of 2010 included a deduction for health insurance premiums when calculating self-employment tax. Self-employed individuals can deduct 100 percent of health insurance costs for themselves, their spouse and dependents. Visit irs.gov and click on "Businesses" for information about these and other business tax breaks.
* Remember tax law changes often. Stay in the know by signing up for small business e-mail updates at irs.gov.
* Do your own business and personal taxes. Software breaks down complicated tax law and guides you through your return while completing the forms. TaxACT offers low-cost software for partnerships, S-corporations and corporations. For 1040 individual returns, use TaxACT Free Federal or Deluxe Edition to file Schedule C for sole proprietorships.
* Keep financial records current. Updated records translate into timely financial statements, which make for easier tax preparation. Scan or keep original receipts for updating monthly books or returning items. They may also be helpful in the event of an Internal Revenue Service audit.
* Track deductible expenses. Whether you deduct actual vehicle expenses or use the standard mileage rate (51 cents per mile in 2011), keep detailed documentation including mileage and purpose. Detailed logs should also be kept for travel expenses and business use of your home. Documenting takes time and effort, but the deductions are worth it.
* Protect information from theft and data loss. Shred sensitive data before recycling and never share financial information with unauthorized personnel. Scan important documents and keep backup copies on a password-protected and secure external drive or cloud setting. Keep digital photographs of valued assets.