10 Ways to Soothe the Pain of Tax Time
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Arenacreative | Dreamstime.com |
Tax time can be stressful for anyone, but small-business owners struggle especially hard to hang on to their money and plan for the future.
Here are five things you need to do before you file this year, and five tips for making tax time a breeze in the future:
1. See if you can deduct the full purchase price of new assets rather than deducting their depreciation over the years. “There are limitations,” said CPA and Saint Joseph’s University business professor Dennis Raible, “but deductions are allowed up to $250,000.” This, Raible said, can make a big difference for mom-and-pop businesses and self-employed individuals.
2. Find out if your health insurance premiums are deductible. Gary Rago, director of Rutgers University’s Small Business Development Center in Camden, N.J., said this is a new feature of the tax code. “Many self-employed business owners,” he said, “will be pleasantly surprised to find out that their health care premiums are deductible against self-employment taxes.”
3. Figure out your business mileage. Each mile scores you a deduction of 50 cents. San Diego-based accountant Tauni Green cites failure to track mileage as a key tax misstep among small-business owners. “At 50 cents a mile, they add up so fast,” Green said.
4. Set up a payment plan early. If you find yourself unable to pay the tax you owe in April, the IRS will work with you. “Over the years, the IRS has evolved into a more friendly organization,” said Raible, who worked for the agency before starting his accounting firm. Late-payers still incur penalties and interest, but setting up a payment plan helps business owners avoid a visit from an IRS collections agent .
5. Send out those 1099 s already! The deadline has passed for issuing 1099s to employees who worked for you on a contractual basis and earned more than $600. But you still must send them out if you have yet to do so. There is a penalty for failing to send 1099s, Rago said.
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Once you’ve taken care of the items above and filed your taxes, consider the following tips for removing tax-time stress next year:
1. Keep great records throughout the year. Know how much is coming in and going out. “Not to oversimplify,” Green said, “but the most important thing is planning.” If you fail to watch your profit and loss like a hawk, she said, a slew of deductions could elude you.
2. Open an SEP IRA. Not only will it help you save for retirement, the deductions you can claim for contributing to such an account can reduce your tax burden. “It can be such a big help come tax time,” Green said, “especially if you owe.”
3. Communicate with your accountant throughout the year. Keep her in the loop about profit increases, which could warrant higher estimated tax payments, or expenses that could qualify for deductions of which you are unaware. Paying too little in estimated taxes could result in an unwelcome bill at tax time, so it pays to give Uncle Sam his share evenly throughout the year.
4. Start planning early. Your tax time accountant meeting should take place no later than October of any given tax year, Rago said. “Waiting until the end of the year or the next year will limit options.”
5. Avoid paying business expenses with cash. Business owners, Rago said, often forget about cash purchases. This greenback amnesia often costs them money in the form of lost deductions. Rago also recommends separating personal and cash expenses to streamline the tax accounting process.