By Rieva Lesonsky
With tax season looming, you’re either feeling confident all your efforts at keeping records will pay off and make filing easy and stress-free—or you’re wishing you had initiated a better organizational system for keeping track of expenses, small business loan documents, invoices and everything else a small business owner needs to hand over to your tax preparer. Either way, here are some basic tips to help you make your (next) tax season go smoother:
1. Keep evidence: Always keep receipts and good records of all your business expenses such as business insurance, travel and entertainment, car mileage/repairs for business-related trips, equipment purchases, office supplies, postage, association dues, subscriptions and anything else business related. If you aren’t sure what you should keep, ask your accountant. To save time, download one of the many expense apps available for your smartphone so you can scan receipts and send them directly to your accounting program. Check out BizExpense and ABUKAI.
2. Get a system: Whether you use QuickBooks or Sage 50 (formerly Sage Peachtree), it’s important to keep organized records of all your income and expenses. Once you get into the habit of entering everything into your accounting program, you’ll be on track if you ever need to provide a quick financial report or income estimate.
2. Home offices: Whether you use your garage or a room in your house as an office, the IRS lets you deduct the percentage of your home used exclusively for business purposes. Also included are utility expenses such as your phone and Internet bills. This year, the IRS has offered a new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet. The hope is to reduce the amount of paperwork and recordkeeping small businesses must do for their home office deduction.
3. Retirement plan: Even as a one-person business, you should set up a self-employed qualified retirement plan (i.e., a SEP IRA). You’ll not only save on your taxes but also prepare for your retirement years. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment and takes into account a deduction for one-half of your self-employment tax and a deduction for contributions to your own SEP-IRA. For more information see the IRS website.
4. Other deductibles: Some startup costs are deductible such as marketing surveys, advertisements and consultant fees. Also, depending on your type of business, consider hiring family members under age 18. Payments to a child working for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which a married couple owns the business.
Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at firstname.lastname@example.org, follow her on Google+ and Twitter.com/Rieva and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports