Tax prep time
Every year, thousands of small business owners rush to gather documents needed to complete a tax filing. As if the tax forms were not challenging enough, small business owners often spend hours gathering the documents needed to fill out tax forms.Getting started with small business tax planning at the beginning of the year can help make tax time far less stressful. Make tax time easier with these simple tips.
Starting From Day One
The best way to begin planning for tax filings is to start at the beginning of your fiscal year. Smart small business tax planning means having a process in place can help you avoid last-minute scurrying around to try to find the documents that are needed to file an accurate tax return. Let’s look at some of the records that must be kept during the year and then determine the best way to organize them for more efficient time management at tax time.
Depending on the type of small business that is being run, income records may come in various forms. In some cases, (for example freelance writers) income may come from a variety of online sources, many of whom will not report earnings. Keep in mind, that while companies are not required to supply a 1099 form when earnings are less than $400, small business owners are still required to report those earnings. Here are some of the types of income records that should be maintained:
- 1099 income – Small business owners may receive 1099 forms from clients. These forms should state clearly how much was earned, who the payee was and to whom the amounts were paid.
- Interest income – Income that is earned as interest on savings accounts, checking accounts, etc. must also be reported as income. Many financial institutions will send out a 1099-INT form regardless of how small an amount is earned.
- Other income – Some small business owners who maintain websites or blogs may earn money from various sources. Affiliate income (from referrals or sales), residual income (earned from writing articles or certain social bookmarking sites) and income earned from “one of” jobs such as web creation, blog submissions or article submissions. Often, these amounts will not add up sufficiently through the year to meet the minimum threshold for reporting via 1099. Keeping track of these earnings on a monthly basis through the year will make tax time less stressful.
Every year, thousands of small business owners overlook expense deductions because they are uncertain which expenses are eligible to be deducted. The Internal Revenue Service provides a simple to use explanation of the types of expenses that may be deducted. Additional lists of tax deductions were created by Patricia Tokar, CPA to help small business owners. Here are a few of the types of expenses that should be recorded through the year.
- Internet access – Today, thousands of small business owners use the Internet for marketing, social networking with new and potential clients and for storing documents online. Without reliable Internet access, it would be nearly impossible for them to run their business effectively. Don’t forget to keep track of all internet expenses by keeping your monthly bills. Remember, if you work from home, only a portion may be deductible.
- Subscription expenses – Small business owners like to be up-to-date on changes in their industry. One way they do this is to subscribe to trade magazines and newsletters. These subscriptions are tax-deductible provided that the business owner keeps all receipts for payment. Many at-home businesses, such as freelance writers, may also have other subscriptions including plagiarism checkers, stock image subscriptions and social media automation tools. These expenses are often paid online therefore the small business owner should print and store their receipts.
- Outsourcing expenses – Small business owners in all industries may hire a freelancer for various tasks including website creation, blog posting, social media networking, etc. These expenses should also be recorded carefully. Remember that if you pay any single person $400 or more you must file a 1099. In any event, it is a good idea to request an IRS W-9 form from the contractor when they are contracted.
Organizing your documents
Using the various resources provided a small business owner will be collecting numerous forms, receipts and other important papers during the year. This means that there has to be a simple way to organize them. Home filing systems need not be complicated, in fact, they should be simple to use to encourage their use. One of the best tools for this type of organization is the expanding file pockets.
These tools are available in a variety of material including cardboard and polyvinyl. Some of them are designed to hang in a filing cabinet while others are easy to store on bookcases. Regardless of what type of storage system you use, using them regularly is the important part. By filing all expenses, earnings recordings and receipts for purchases of equipment (for depreciation purposes), tax time does not have to mean ripping your hair out for days trying to find your receipts.
Don’t forget to keep track of all of your charitable donations, business related mileage and business related meals as you will need these when filing your taxes as well. This is a good time to think about preparing yourself for a new year. Make yourself a promise today that once you have finished this years taxes you’ll get your tax records in order and be better prepared next year.
Here are some additional titles that can help with tax preparation
What to do if you owe the IRS money and you can’t pay
A Collection of Resources on How to Avoid Tax Problems for Small Businesses
Tax Time is Coming! – 101 Tax deductions for bloggers and freelancers