The Four Fundamentals of Small Business Taxes

You run a business, and you’ve never been audited before, but there’s a first time for everything. Ever since the Affordable Care Act was passed, the IRS has been gearing up to increase compliance with the tax laws so that they can increase revenues for the government. Naturally, this means that more people will be getting audited. Are you prepared?

Keep Good Records

Keeping good records is one of the best things you can do to protect yourself from the torture associated with an audit. No, it won’t protect you from being audited but, if you ever get that notice in the mail from the IRS, it can make life just a little easier.

Keep personal and business expenses separate, make copies of all receipts and back up deduction claims. Also keep in mind that tax credits and deductions change each year.

Utilize Small Business Jobs Act Tax Provisions

Companies like the Liberty Tax franchise are helping small businesses take advantage of the tax credits buried in the 2010 Small Business Jobs Act. This law, signed by President Obama, has over 17 tax provisions to decrease tax burdens for small businesses. At least several of this provisions can be taken advantage of during this year’s tax season. By using all of them, you could save a pretty good deal of money.

Remember The Tax Credits Under The ACA

Tax credits aren’t limited to the Jobs Act. The ACA, also called the “Affordable Care Act,” allows you to cover up to 35 percent of the health care premiums that you pay to cover your workers. In 2014, this tax credit will increase to 50 percent.

It might not sound like much, but remember that this is just one of many tax deductions you can take as a business. You still get all of the usual tax deductions in addition to this.

Avoid Common Audit Traps

There are lots of “gotchas” in the tax code. But, many small businesses make stupid mistakes like:

  • classifying employees as independent contractors
  • taking a home office deduction when not allowed
  • taking large sum miscellaneous deductions
  • co-mingling business and personal expenses
  • using both schedule A and schedule C to deduct the same expense

Classifying employees as independent contractors is especially bad practice now that the IRS is on the lookout for employers trying to dodge the employer mandate of the Affordable Care Act. In the eyes of the IRS, this misclassification could be seen as tax evasion (i.e. an attempt to avoid paying payroll taxes).

The home office deduction is another one that can foul up your return. Even if you do have a home office, this deduction is meant for those who work primarily out of their home or who use a space in their home for legitimate business use.

Large sum miscellaneous deductions are an excellent way to hide income, but the IRS gets suspicious if there’s large amounts of this deduction. Make sure when you itemize deductions, you list everything you’re taking a deduction for.

Jeremy is a veteran entrepreneur. He often breaks down the logistical side of owning a small business from taxes to employment law.

2 thoughts on “The Four Fundamentals of Small Business Taxes”

  1. Pingback: Struggling Entreprenuer » Blog Archive » 231- Fundamentals of Small Business taxes and Note-taking study

  2. Pingback: Guide to Amending Your Tax Return | Entrepreneur Podcast Network - EPN

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