Tax season is often the most hectic, confusing time of the year for small business owners. Even if you work with a professional accountant, tax laws constantly change, and you may not fully understand some of them. Whether your taxes are already filed or you're waiting until the last minute, here are this year's most confusing business tax issues explained by financial experts.
Most business owners, especially those who hire freelance or contract workers, know about Form 1099-MISC, used to report payments for which taxes aren't withheld. But some taxpayers may be confused about receiving a notice from the IRS about Form 1099-K, an information return that reports payment card and third-party network transactions.
"These transactions should already be reflected in gross receipts —all payment card, cash and check receipts —on the tax return," said Mike Davolio, senior tax analyst at Intuit's professional tax group. "Some businesses may have received a notice from the IRS related to Form 1099-K. Taxpayers receive this because gross receipts may be underreported." [4 Tax Deductions Small Businesses Often Overlook]
If you do receive a notice about your 1099-K form, Davolio advised reading it carefully and completing any attached worksheets. Review your tax records to determine if you agree with the notice, and always contact the IRS with any questions.
BitCoin sales tax
More and more e-commerce businesses have explored BitCoin as a payment option, due to its low transaction fees and ease of checkout experience. But Mark Faggiano, founder and CEO of tax automation software company TaxJar, noted that this new form of payment has special tax implications that business owners should keep in mind.
"Merchants who collect sales in BitCoin must still abide by both federal and state laws for income and sales taxes," he told Business News Daily. "The U.S. government doesn't accept BitCoin for tax remittance, so merchants are required to both calculate and exchange BitCoin for U.S. dollars before they file taxes."
As BitCoin laws continue to evolve, be sure to follow the developments closely to avoid potential penalties or audits, Faggiano said.
Editor’s Note: Considering hiring an accounting or bookkeeping service for your business? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to have our sister site, Buyer Zone, provide you with information from a variety of vendors for free:
Home office deduction
The IRS has made it easier than ever for home-based small business owners to save on their taxes. Prior to this year, taxpayers who worked from home had to calculate how the "office" portion of their home broke down for each individual bill, such as mortgage and utilities, in order to receive a deduction. Now you can simply deduct $5 for each square foot of your home office, up to 300 square feet.
While this optional deduction has the potential to save the work-from-home crowd as much as $1,500 a year, Jody Padar, president and CEO of NewVision CPA Group and Xero partner accountant, recommended that business owners consult with their accountants to see if there are better ways to save on taxes.
"Small businesses think that, because the IRS has released a new [or simplified] deduction, it will solve all their problems," Padar said. "Depending on the type or size of your business, there may be [more] practical ways to save more money" than the home office deduction.
Health insurance premium credit
The Affordable Care Act has been top of mind for many business owners this past year, even if the regulations haven't had a significant effect on these companies' operations. Qualified small businesses that do provide health insurance for employees can claim a credit for this coverage. Employers have been slow to adopt the credit because of its complexity, but if you qualify, it can mean big savings.
To qualify, the business must have 25 or fewer employees, with an average salary of less-than or equal-to $50,000, and the company must cover at least 50 percent of insurance premiums, Davolio explained. For tax years 2010 through 2013, businesses can claim a maximum credit equal to 35 percent of the premiums paid. For tax year 2014, the maximum credit, which is claimed on IRS Form 8941, increases to 50 percent of the premiums paid.
In general, to make tax season less stressful, Padar recommended maintaining contact with your accountant throughout the year, keeping your receipts and financial information organized with tax software, and most importantly, keeping your business and personal life separate.
"Your business life is business, and your personal life is personal — make sure you're treating them as such," Padar said. "Don't comingle your business finances with personal ones. Cover business expenses with a specific business credit card. If your finances are always separate, it's much easier to get through an audit."
Originally published on Business News Daily.