Tricks Tax For The Owner Of Small Business

Our firm does not do taxes, even though I did them for 12 years. When I began my practice that was a service I simply did not want to offer. However, we do partner with CPAs and other tax professionals to be certain that the guidance we provide our clients is in line with the advice their tax professional give them.

As part of that guidance, there are a few tax advantages that most business owners either don’t know about or simply don’t take advantage of. There are also some “deductions” that should be avoided due to misguided tax information. Here is a list of the five most common.

Track All Expenses Consistently

Track all of your expenses including the ones you pay for personally. Business owners always ask me “what about the stuff I paid for on my personal credit card?” Yes it is all deductible; you just need to get it on the accounting records and account for it. Keep in mind that the credit card is personal so don’t add that account to your chart of accounts. They will count as owner or shareholder contributions. TIP: Record these charges monthly so you don’t forget at the end of the year.

Avoid Money Leaks

As a small business owner you are sometimes faced with cash flow issues. As a result you get behind on paying your bills and your taxes. While your vendor may not assess late fees, you better believe the IRS will in the form of penalties and interest. And these my friend are non-deductible. Nope not even the interest portion. TIP: Plug this money leak by paying your taxes on time and use those funds on an expense that is deductible.

Maximize Retirement Contributions

Most small business owners are so busy working in their business that they never stop to think about what they will do once they retire. I’m not even sure you think about retiring at all. But the fact is you will — one day. So you have to sure to have some sort of nest egg. There are several retirement plan options that will allow you to put aside some funds tax free for your retirement and they are all tax deductible to the business. Yes you can have your own company retirement plan. Cool right? TIP: Contact your tax advisor and your financial advisor to discuss retirement plan options.

Expenses Paid Personally

I cannot say it enough – stop co-mingling your personal expenses through the business. They are not tax deductible and us accountants — we know when you try to do it. Believe it or not we are smarter than the average bear. TIP: Don’t co-mingle.

Section 179

The IRS allows you to expense the purchase of a major fixed asset all in the first year instead of depreciating it, baring certain qualifications. You can deduct up to as much as $500,000 and reduce your taxable income to zero. TIP: Hold off buying any and all equipment until December if you can so you can buy just enough and not too much.

What tax tips have you taken advantage of to help keep more money in your business?

Tips To Get Biggest Tax Refund

During tax season, millions of Americans anxiously wait for W2’s, 1099’s, 1098’s and other documents needed to file income taxes. Some get excited about the lump sum refund owed to them but most professionals cringe at the thought of filing taxes. Usually praying to just break even and not owe the government any money.

The government does not give the middle class many tax breaks. Most tax credits have income limits. So climbing the corporate ladder and shooting for that six figure salary means paying more taxes. That is just the way American tax system works. However, there is a way to create credits regardless of income. Start a business. Having a small business that you run out of your home sets you up to write off expenses that normally would not qualify. Who gets the biggest tax breaks in America? Big business. Become a business.

Most cannot write off any of job related expenses paid for after taxes. For example, a $50,000 salary becomes $42,500 after taxes. That means all living expenses come from $42,500, not $50,000. Dry cleaning, meals, gas, car maintenance, utility bills, etc. Owning a business allows you to pay taxes on what’s left after paying expenses. What is deductible? Dry cleaning, meals, networking events, cell phones use for business, vehicle interest, car maintenance, mileage on your car used for business, business travel, the list could go on. Deducting all of those expenses before paying taxes and lowers the tax rate.

No Business

  • Earn a $50,000 salary
  • Bring Home $42,500 after taxes
  • Live off of $42,500
  • Owe more/break even after filing income taxes

How does owning a business help with income taxes? If you earned $5,000 from your business while working to earn a $50,000 salary, part of day-to-day expenses, now business expenses, are deductible. The cost to run your business is also deductible. For example, deduct $7000 in business expenses from total income of $50,000 plus $5,000. The taxable income is now $48,000 instead of $50,000. Since $50,000 is taxable income over the course of the year, a refund is in order when it reduces to $48,000.

With a Business

  • Earn a $50,000 salary
  • Earn $5,000 from your home based business
  • $7,000 in living expenses are now business expenses
  • Taxable income is now $48,000 instead of $50,000

Individual income tax and small business refunds will vary. This is just an example of how owning a small business can benefit you. Turn a marketable talent into a business. Start a direct sales business for an immediate solution. Filing income taxes does not have end with another bill.

How To Prepare Your Tax

It’s one of the few times we look forward to tax-related tasks, and when it comes to saving versus splurging, CNBC reports that we have a tendency to treat ourselves this time of year. The IRS reports that the average refund is $3,116, which is a good chunk of change whether you want to pay off some bills, save or get yourself something nice.

MIT Sloan School of Management Professor Jonathan Parker says that there’s a lot of needless (but fun) spending happening in households reporting in a survey that they plan to save the money. That’s not to say that these households aren’t saving part of their refund, but it also seems too tempting to get a big check and not spend at least part of it on yourself or family.

Helping the Economy Out

Edward Jones, a financial services company, also has polled those getting refunds and discovered that only 8 percent of people admit to spending their refund on a fun but unnecessary treat for themselves (the key word here is “admit”).

Just over half, 52 percent, said refunds were earmarked for necessities such as household expenses or paying off debt. Another 30 percent say they plan to save, 8 percent want to invest it and just 2 percent weren’t sure yet how they would spend their windfall.

Some people even plan costly events like weddings around tax refund season. In 2015, a couple from Portland, Oregon, planned their destination wedding in Jamaica in early May because they knew friends and family would be flush with tax refunds that time of year. This savvy planning paid off, as the majority of their invitees accepted and spent Uncle Sam’s refund on tropical drinks, souvenirs and of course wedding gifts.

Make More of Your Refund

There’s nothing wrong with treating yourself, especially if you put aside just a small percentage of your refund for something fun. However, those who really struggle with saving or investing can try some strategies to improve fiscal responsibility.

For example, the IRS offers direct deposit of refund checks, and all you need to provide is the bank name, account number and routing number. Choose an account you don’t regularly check or have access to, or open a new savings account and opt out of getting checks or debit cards, and have your refund routed to this account.

CNN Money reports that 80 percent of tax filers get a refund, which means most of us are likely facing the same conundrum right now. Regardless of how small or big your refund, how should you spend it? The majority of those getting a refund (84 percent) make less than $50,000 per year, so a significant refund can make a big impact on paying down debt, saving or investing. Make the most of your refund this year and map out where each dollar will go.

Guide To Choose Your Tax Accountants

When tax season rolls around, many businesses recall that they wanted to hire a new accountant, and new businesses are often hit with the sudden realization that they are desperate need of some assistance with their finances. Dealing with business finances on your own can be a nightmare, and can result in businesses missing out on important deductions that could save them a lot of money in the long run. Finding the perfect specialist for the job may take some extra time, but it is important to realize that not all professionals are created equally. Before spending all of your profit just to be left disappointed, take the time to read these tips that will guarantee that you wind up with a tax accountant that is perfect for both you and your business.

Shop Around

When you take the time to shop around, it guarantees that you find an accountant with the experience that you need. Hiring a specialist that is experienced in your area of concern is vital to the success of your business, and can help save you money. For example, you would not want to hire an individual that has limited or no experience in handling business situations if you own your own business, just like you would not hire a professional with no audit experience to handle your audit situation. Experienced professionals are aware of important rules, regulations and deductions that other professionals may not be.

Ask Questions

If an individual is fresh out of school and you are their first client, it is highly unlikely that they will be willing to divulge that information. Inquire about previous clients, issues that they may specialize in, ask for vague examples of previous clients and do not forget about their education. As you ask questions, it may seem a bit like you are interviewing your possible candidates in an effort to find the perfect one to hire, and that is exactly what you are doing. The end result will be the perfect professional for you and your business.

Get to Know Them

Hiring a new accountant is a bit like hiring a person for your wedding. If you hire a professional that you simply do not like or are not comfortable around, for any reason, it will make an already stressful situation much worse. Schedule free consultations when possible, and then use them as an opportunity to get a feel for the person behind the desk. If your personalities are compatible, it will make it easier to delve deep into your situation and work together as a team.

Affordability

Take the cost into account before hiring your next tax accountant. Often, specialists will make vague promises of saving you money on your taxes, and use that as justification for charging more to help you file them in the first place. Unfortunately, these scams do not always, if ever, work out in favor of the business. Be wary of companies that overcharge for their services. If one professional offers similar services at half of the price, it may be a wise idea to give them a chance.

Hiring a new financial specialist at the spur of the moment may seem a bit easier, and it is in the beginning, but the end result may not be as satisfying. Take the time to shop around and get to know the person or company that you may be hiring to make sure that you are hiring a specialist that will be able to help you for years instead of one that will leave you feeling disappointed after just a few months.