Get Ready for Tax Time
It''s tax time. Ease the hassle this year with these tax preparation tips as well as guidelines for recent deduction changes.
By DeAnna Stephens Baker
Date Posted: 3/1/2013
It’s that time of year again – the time to square up your business and personal accounts with the Internal Revenue Service (IRS). Navigating the ins and outs of the federal tax code is not an easy task. Even accountants spend a lot of the year studying it in preparation for the next year. When you add in last minute changes, such as those included in the fiscal-cliff deal, it becomes even more difficult. But here are some tips to help you prepare your business for tax time and make it through April 15.
• Start now. Don’t wait until April to start working on your taxes. Preparing your taxes early will give you time to double check everything, find any missing paperwork and avoid the stress of last-minute submissions.
• File for an extension as soon as you think you might need it. But remember that if you owe any taxes, you still have to pay them by April 15, 2013, even if you file for an extension. Depending on your company type, you can use Form 1065, Form 7004 or Form 4868 to file for an extension.
• Tax credits and deductions change every year. Make sure you know which ones your company is eligible for this year. Two big ones to be aware of this year are the Affordable Care Act (ACA) and the Small Business Jobs Act (SBJA). Under the ACA, companies with 25 or fewer full-time employees that contribute more than 50% of their employees’ total premium costs could receive a tax credit of up to 35% of their contribution toward employees’ health insurance. The SBJA has a number of different provisions, including deductions for cell phone costs and a 50% bonus depreciation on new investments. Other credits and deductions that you should consider include Section 179 expensing and the research and development credit.
• Keep all documentation and receipts that you need to back up any credits and deductions you claim organized. In the case of an audit, you are going to need this information and will want to be able to find it easily and quickly.
• Make sure that all your records are up to date. If there are any expenses or payments that have not been entered into your accounts, get that done now. You don’t want to be looking for missing information at the deadline.
• Make digital copies of everything. This can be useful for paper receipts as many can begin to fade over time. Receipts can be scanned in using a standard office scanner or by using a system such as NeatReceipts. If you are having your taxes done by an accountant, this will make it easier for them to have access to all your records and not have to repeatedly come back to you with questions about missing documentation.
• If you are preparing your company’s taxes yourself, consider using a computer software program instead of doing it by hand. This can reduce the amount of time it takes you, reduce errors and can be easier to double-check information.
• Update your tax software. Since the fiscal cliff deal was not finalized until after January 1, there are a number of changes that were not originally included in the 2013 tax software. If you are doing your taxes yourself and bought your tax software before January 2013, you definitely need to make sure you download the latest update; if you bought it after New Year’s Day, you should still check to make sure it has all the updates.
• Make sure that you have all of the correct forms and that they are filled out completely. Many credits and deductions require separate forms. Missing forms or information can delay the processing of your return and cause a headache, and maybe even fines, down the road.
• Don’t forget to report any charitable donations of business inventory or assets on your taxes. Remember that while your company can receive tax write offs for these transactions, it cannot receive any for time spent doing a charitable activity.
• Avoid audit red flags. There are several things that catch the attention of the IRS and increase a company’s chances of being audited. One is classifying employees as independent contractors. The IRS has strict rules about who can be classified as an independent contractor and who must be classified as an employee. Incorrectly classifying workers can be viewed as an attempt to avoid payroll taxes and can result in being charged penalties as well as back taxes. Large amounts of miscellaneous deductions are also something that catches the eye of the IRS. To avoid this, be as specific as possible and label each deduction.
• Use available resources. There are many business tax tips and resources easily available online. The National Federation of Independent Business has a number of articles on IRS rules, tax saving strategies and other tax-related advice on its website at http://www.nfib.com/business-resources/tax-help/tax-tips. The IRS also has a Web page created specifically for small businesses at http://www.irs.gov/businesses/small/index.html.
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