Oh, the joyous time when we all seem to scramble to complete our taxes in hopes of receiving a hefty tax return. Okay, so tax season may not be the most exciting time of the year, but we should still get ahead of our obligations and begin preparing our taxes. Whatever your business structure, there are several steps you can take to get your small business taxes in order. Maximize your deductions and breeze through this tax season by following these five small business tax preparations tips.
Check your Books, Gather your Records
Whether you’re running an exponentially growing small business or an independent contractor picking up odd jobs to help make ends meet, spend a little bit of time as the tax filing deadline approaches to examine your books. In order to file your taxes accurately, you’ll need to take the time to make sure all of your entries are accurate and up-to-date. Your records and other documentation should “line up” to support the numbers you provide for your tax return. Some examples of documents you should organize for your filing include expense receipts, bank statements and the previous year’s tax forms.
Brush up on your Deductions
You most likely used the last month or two of 2012 to increase your expenses so you could maximize your business’ tax deductions. Whether you stockpiled office supplies, paid your office’s bills in advance, or made charitable contributions, your expenses affect how much you can deduct in your tax filing. As a small business owner, it can end up costing you if you don’t take all of the deductions you deserve. However, it can be difficult to know of all the deductions you qualify for. Luckily, the IRS can help you determine what deductions you can include in your taxes.
Defer Earned Income
You may be able to reduce your overall taxable income for the 2012 tax year by deferring payments you receive for services rendered. This will allow you to defer your tax owed on this income until April 2013. If you have a LLC, S-Corporation, are a sole proprietor or are in a legal partnership, deferring your income can help you if you don’t foresee any major changes to your tax rates in the new year. However, if you think your tax rates may change for 2013, collect payments as soon as possible and include them in this year’s tax filing.
Know your Obligations
If you used independent contractors last year, or hired employees for the first time, you need to familiarize yourself with all of the tax reporting obligations and deadlines you must adhere to. As an employer, you must provide all of your employees with their W-2 forms by the end of January, as well as file them with the Social Security Administration. In doing this, you will show all wages paid and taxes withheld for your employees. This will accompany your W-3 to be submitted by the end of February, showing all of the totals compiled from your employees’ W-2s.
If you hired independent contractors in the past year, or any other business that is not an employee of yours, you should provide them with W-9 forms if you paid them at least $600 throughout 2012. The deadline to provide any independent contractors with their 1099-MISC form to report payments made to those contractors is the end of January. You should have maintained all of these, along with contractors’ business licenses and insurance certification throughout the year to make this a relatively easy task.
Prepare to be Audited
Whether you chose to hire a professional to do your taxes or purchased small business software to help you do your taxes yourself, there is always a chance your business will be audited. The IRS will typically choose to perform an audit if your tax returns don’t exactly add up or if you included information in the wrong field, even if there isn’t a true issue with your filing. The IRS can look at your tax returns up to six years in the past, and they recommend you keep all of your tax records for a minimum of the three previous years on file. You should keep the hard copies of these in a safe and secure location, while also backing these files up electronically.
If you do as much research as you can before filing your taxes, it will help you determine if you have any deductions you qualify for, if there are any extra forms you may need, or if you should seek professional tax help. The sooner you choose to tackle your small business taxes, the quicker you will become organized and submit your filing well before the tax season ends.