It is tax season, and small business taxpayers are looking for ways to save money, and maximize deductions and credits. It is the right time for small businesses to decide what they want to achieve next year and how they can minimize tax liabilities. Tax time comes with an urgency and pressure, and small businesses are vulnerable to mistakes. Paper traits can go awry, tax deductions can go unclaimed and costly surprises can result etc. It is always better for a small business to hire some small business tax preparation service. To get you started, here are few important tips you can take in order to maximize your tax benefits:
Maintain separate accounts for business and personal expenses
Many small businesses merge their business and personal accounts. It can cause a big confusion around tax time, making it difficult to track expenses and incomes. Luckily, you can avoid this problem with a little care up front. If you operate a small business, make sure to maintain separate bank accounts in your business’s name and prepare regular accounting statements for evidence including balance sheet, income statement, cash flow statement etc.
Keep a proper record of business expenses
A good and careful documentation is critical for justifying many deductions from income. Small business common deductions are entertainment, travel, meals, charitable donations, health insurance, start-up expenses etc. It is significant to get all these records in a good shape. Keep a diary to record all the entertainment expenses, including the amount, purpose, date and place. For travel expenses, you should keep a trip log separating personal and business use.
Avoid tax preparation mistakes
Small businesses do a lot of tax mistakes and it is important to mitigate those mistakes. A big mistake that business owners make is to limit their deduction to mileage. If you can prove that these all are business expenses, you can deduct the cost of oil, insurance, tires, lease payments and parking fees In addition, don’t forget the small expenses. Whether it is magazine subscriptions or education classes, make sure to track all your expenses and consult your tax advisor about what you can or can’t deduct. Moreover, don’t forget about your other tax obligation such as local taxes, payroll, property, self-employment taxes etc. These all can hurt you if you are not compliant in a timely manner.
Avoid becoming a victim to scams
Tax season is the time when small business taxpayers are vulnerable to scams. One of the most common tax scams involves a call, text message or email from an unknown who claims to represent the IRS. But in reality, IRS doesn’t contact taxpayer about such matters. The motive of this scam is to collect money. In addition, it always better to keep all communication secure between tax preparers and their clients. Some scammers may attempt to intercept this communication to steal sensitive information. So if you are sharing some information related to your taxes with any person, make sure that the communications are kept secure from scammers.