April 14, 2011
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At this time of year, most small business owners worry about paying their taxes. This is typically a result of improper planning or the company’s cash flow not permitting the timely payment of quarterly taxes. All of this can make Apr. 18 a nightmare!
Here are a few last minute deductions that may cut your company’s tax bill:
1. Claim every “ordinary and necessary” expense. Fortunately, the IRS code doesn't list every type and category of expense that is deductible as a business expense. An “ordinary” expense is one that is “common” in your industry and accepted in the taxpayer's line or work. This is where your CPA can help with accepted practices.
2. Write off all your bad debts now. Be realistic. Are you ever going to collect money from that delinquent customer or a loan you made to a third party? If your business ever does collect the debt, then it can be claimed as income at that later date.
3. Record in kind donations. Did your business make in kind donations to non profit organizations—such as inventory—that have not been listed on your tax return?
4. Claim credit card and other interest. All that troublesome interest is also tax deductible as a business expense.
Want to read more tax tips? Check these out:
5. Claim your tax credits. Your small business may qualify for a health care tax credit, bonus depreciations and more retirement plan contributions.
But tax planning should not come down to just April and December. In order to make this time of year less painful, the small business owner can:
1. Stay up-to-date. Review monthly financial statements. Ensure that all accounts are reconciled. If this happens, then sending the annual profit and loss and balance sheet statements to your accountant will be as simple as the click of a button.
2. Be prepared. Don’t send information to your accountant that is disorganized or incomplete. This will just cost your business more time and money.
3. Be able to talk to your accountant at your level. Even during busy tax season, if your accountant doesn’t return your phone calls within 24 hours, get a new one. Ensure that they understand your business and have experience in your industry vertical. This can be critical in the ability to lower your taxes. They should never make you feel stupid or hamper your understanding of the financial statements.
4. Forget the tax preparer. There are many professionals that claim they can file your taxes. Use one that has a CPA. Remember, their work is your insurance policy if the IRS comes calling. Think about whom you want in your corner.
5. Not ready, then extend. With the help of your accountant, estimate the taxes that are owed and pay them. But then extend until Oct. 15 to file your taxes. This can be done with no penalty as long as all the taxes are paid on time.
6. Pay quarterly taxes. Set this up as a payable in your business based on your cash profits. Make its payment an important priority.
What do you do to make this time a year less of a nightmare?
Thanks to Nicole Rosen and Jody Padar, CPA for contributing to this article.
Check your balance, review recent transactions and pay your bill on the go.
Barry Moltz 1 year 1 months and 16 days ago
Love it! Thank you!