These tax tips could save your small biz big
If you think Uncle Sam is trying to take all your money, heres how to take some of it back or keep more for yourself.
PERHAPS YOU'VE FILED for an extension on your taxes this year. Or maybe you're waiting until the last minute to complete paperwork. Chances are you could be doing a better job during the year to save on federal taxes, says Mike Gillen, a certified public accountant who heads the tax-accounting group at Duane Morris. Here are some of his tips:
* Don't overlook deductions.
A general rule of thumb is that any expense directly related to or associated with your business is a potential tax savings. "If you think like that, you'll avoid overlooking deductions," Gillen said.
One associated expense often overlooked, underreported or miscalculated is an office in the home. The rules are simple: It must be used exclusively and regularly for business. "That means it's solely used for business and can't be in a bedroom or kitchen," Gillen said.
There are two ways to take the deduction. One is a simplified method that allows you to claim $5 per square foot up to 300 square feet. Actual expenses is where you can claim a portion - say 200 square feet of a 2,000-square-foot home - and you can write off 10 percent of mortgage interest, taxes, utilities and other related costs.
* Keep proper records to max out deductions.
"It could be paper or electronic," Gillen said. "If you keep adequate records, you're going to maximize bona-fide deductions. If you don't, you're hurting yourself."
* Don't forget estimated tax payments.
Federal taxes are not withheld for many small businesses. That means you need to pay estimated taxes. "If you don't remit timely (usually quarterly) or sufficiently, you can be tagged with a penalty, which is 3 percent interest, compounded daily, equivalent to 5 percent if you're in the upper tax brackets," Gillen said. He advises taxpayers to establish a line of credit to ensure there's cash to pay estimated taxes when due.
* Online retailers, listen up:
E-commerce has changed how small biz is done, but that also can result in tax complications. Gillen said online sellers should be careful not to underreport income: "Just because it's all online doesn't mean it's not taxable." If you sell via an online marketplace like Etsy, sales are at least $20,000 and you have more than 200 transactions annually, Etsy will issue a Form 1099-K and notify the IRS that you have taxable proceeds. Report all your income, even if you don't get a 1099.
* There's also a small-business health-care tax credit:
The maximum credit is 50 percent of premiums paid for small- biz employers and 35 percent for small tax-exempt ones. To be eligible, a small employer must pay premiums for employees enrolled in health plans offered through a Small Business Health Options Program Exchange. It's available for two consecutive tax years. You must have fewer than 25 full-time employees, and they must have average wages of less than $50,000 a year.