Five Money Saving Tax Tips for Small Businesses

The tax season is a difficult sea to navigate for any company, but it can be an especially unique challenge for small businesses. While you may have until April to file your taxes, tax preparation should be a yearlong process. Follow these five tips to give your small business a simpler tax season with less stress.

tax-meme 2.25.16

  1. Know the Important Dates

Depending on the type of business you are operating, there are different filing deadlines that you need to know. For example, if you’re a sole proprietor or a single-member LLC, then your tax deadline will typically be April 15, the same day as personal income tax.

If you have incorporated your small business, then the income tax must be paid three months after your company’s year-end. Corporations have the flexibility to pick a year-end date prior to filing their first year, allowing them to choose a schedule that will best suit their needs. For example, if you have a beauty salon, you may choose a year-end date that falls after the holidays but before the summer wedding rush.

  1. Fund a Retirement Plan

If the amount of taxes you owe for the year is exorbitantly high, consider making contributions to your retirement accounts. As long as neither you nor your spouse has active participant status, your Traditional IRA contribution is deductible. If you or your spouse is an active participant, then your tax filing status and your MAGI determines whether the contribution will qualify as an additional deduction.

If you have not already done so, consider establishing a retirement plan for your small business. Depending on your annual salary and the type of plan you choose, you may be able to contribute and deduct up to $53,000 a year.

  1. Work with a Professional

As a small business owner, you probably wear a lot of hats. No doubt you’re competent in your field of expertise, but when it comes to your business’s finances, it’s best to work with a professional. Bookkeeping can be an overwhelming and tedious task, and hiring a tax attorney or accountant will allow you to focus on growing your business.

Even if you currently handle your business’s finances, tax time is a great time to hire an accountant. Their job is to ensure you are organized, prepare your taxes and make certain everything is in accordance with all CRA guidelines.

Tax planning shouldn’t be a year-end scramble. It should involve consistent preparation throughout the year. By establishing a relationship with a tax advocate, you can minimize your risk of an audit while saving money as your small business expands.

  1. Have Lunch Meetings

Whether you’re looking for a last minute deduction or you want to qualify for more deductions next year, consider hosting lunch meetings. When you dine with your business partners or employees, 50% of the cost of the meal is tax deductible, so long as the meal isn’t too lavish or over-the-top and it is specifically for business.

If meals or entertainment are provided for the benefit of your employees, you can deduct 100% of the cost. Examples of expenses that can be written off at 100% include:

  • Free food and beverages provided to the public for the purpose of promoting your business
  • Company picnics
  • Holiday parties, both in your facility and at a restaurant
  • Meals provided to employees as an incentive to work after-hours or on holidays and weekends
  • Free coffee, bottled water or snacks provided to employees at the place of business

The IRS looks closely at deductions for meal costs, so be sure to keep proper documentation. There are numerous smart phone apps available that allow you to input the date and location of the meal and upload a photo of the receipt, making it easy to keep a record of it.

  1. Charitable Contributions

Small business owners are a generous lot. In fact, studies show that up to 75% of small businesses make charitable contributions. A donation to a 501(c)(3) in the form of cash, volunteered services or sponsorship of a fundraiser can be deducted in whole or in part. As always, careful record keeping is a must. In most cases, an organization should provide you with a written statement that it has received a contribution from your business.

Preparation is not only essential to having a tax season that is free from stress and frustration, but it also ensures that your small business receives all of the tax benefits for which it is eligible. By staying organized and preparing for tax season throughout the year, you can be confident that you are making the best financial decisions for your small business.

Tax Filing Tips for Beginners

Written by Mary Lou Boles, Programs Assistant

Tax Beginners Blog 1.27.16

Nothing says “adulthood” like filing your own taxes. But don’t let that thought intimidate you: doing your taxes doesn’t need to be a daunting task. By following these tips and tactics, rookie taxpayers can save time and money this tax season.

Collect and organize your tax documents. Though tedious, organizing all the paperwork that you’ll need is essential. People who are new to filing their taxes generally just need to keep track of their W-2 forms – the document that reports an employee’s annual wages and the amount of taxes withheld from their paycheck- and maybe the 1098-E form that shows the interest paid on student loans throughout the year. The amount of tax documents you need may increase as you financially mature. Keep all of your tax documents in one place and make a folder for each tax year.

Educate Yourself. There are a lot of fancy terms associated with taxes such as exemptions, credits and deductions, to name a few. It’s important to educate yourself on these terms and find out what they mean. You wouldn’t go out and buy a new laptop without researching the customer reviews, right? Likewise, it’s smart to do a little research on your tax situation to ensure that you receive a proper refund. Check out TurboTax’s Tax Term Glossary to define any unknown terms that you come across.

Decide how you want to file. Now that you’re organized and understand all your tax documents, it’s time to decide how you want to file. Many tax payers decide to file their taxes online through H&R Block or TurboTax. Online tax filing software like these are generally free and easy to use if you’re filing simple tax return forms such as the 1040EZ or 1040A. Utilize helpful articles by the Internal Revenue Service (IRS) like this one to determine which form you should use if you’re unsure. Inexperienced tax preparers may be more comfortable filing in person, either from a certified tax preparer or a franchise tax office. Make sure you take the time to find a reputable tax preparer because inexperienced taxpayers are often easy targets for con artists. Protect yourself from scams by avoiding tax preparers that base their fees on how large your refund will be.  Visit BBB’s Accredited Business Directory to find accredited tax preparers.

Don’t Procrastinate. The tax submission deadline this year is April 18, 2016. Make sure you file your taxes in a timely manner. The earlier you file, the sooner you’ll get your tax refund. If you end up needing more time to file your taxes past the submission date then you must file Form 4868, which is the application for Automatic Extension of Time to File U.S. Individual Income Tax Return. You can find this form and more information regarding tax filing extensions here.

Good luck filing your taxes! Remember, bbb.org is always a good resource!

Securing Identities: A Step-by-Step Guide to Document Shredding

Shredded Paper | © Mike Haw / Wikimedia Commons / CC-BY-2.0
© Mike Haw / Wikimedia Commons / CC-BY-2.0

Spring is in the air and it’s the perfect excuse I need to begin the process of cleaning and reorganizing my home/desk/life. I’ve never been much of a hoarder but working at Better Business Bureau for the last few years has reinforced my fear of throwing away any pieces of paper that have personal information on them—after all, most identity theft still occurs via physical methods like dumpster diving and mail theft. And in case you’re wondering, I have a lot of pieces of paper that have personal information on them. So in preparation for the upcoming BBB Secure Your ID Day free document shredding event, I decided to take action. Hopefully my strategy will offer some insight to people in similar situations.

1) Decide what to keep and what not to keep. BBB has a great PDF Records Retention Schedule that lists the most common items and how long they should be kept—based on guidelines from the Internal Revenue Service—and I used it to create four groups of documents:

  • Old stuff to keep forever. The bottom line is that some items simply need to be held on to indefinitely—like previous tax returns, retirement account contributions, deeds and mortgage paperwork.
  • Old stuff to keep for seven years. The IRS recommends keeping documents anywhere from one to seven years, but to simplify the process I just decided to make it easy: If something is on the retention schedule at all and less than seven years old, it will go in the “keep” pile.
  • Current stuff to keep. For the current year’s taxes, I need to hold on to everything from the most recent calendar year. However, it won’t do me any good to mix it all in with the seven-year pile so it gets its own group.
  • Stuff to destroy. Everything else. That happy hour receipt is a great reminder of an afternoon well spent, but poses no real reason to be saved.

2) Sort everything. I gathered all the papers I could find and made a big pile. With BBB’s Record Retention Schedule in front of me it was easy to stick to my four groups.

3) Organize the documents that need to be kept. This is by far the most complicated part of the process. Moving forward, I want it to be super easy to find old papers when I need them. To accomplish this I started a filing system. Organizing documents by type is a great way to maximize efficiency—let’s say I need an insurance document but I’m not sure which year it was filed; I just pop out my insurance folder and it’s there, somewhere. Each folder is organized chronologically, with the most recent documents in front and the seven-year-old documents in the back. I created six different folders:

  • Credit Card/Purchasing Documents
  • Bank Documents
  • Investment Documents
  • Insurance Documents
  • Tax Documents
  • Home/Residence & Personal Documents

4) Shred. Now I’m set to shred. BBB offers two free document shredding events per year—one right after taxes are due in April and the other during National Cyber Security Awareness Month in October. For dates, locations and times make sure to regularly check go.bbb.org/akorww-syid.

5) Be proactive in protecting identities. A personal shredder is officially on my shopping list so that I can keep up with secure document destruction all year long. And I signed up for BBB’s eNewsletter, Torch Report: News for the Savvy Consumer, for ID theft prevention tips and scam alerts delivered right to my inbox every month.

Remember, identity theft is a big deal. Shred it and forget it.