Ten Tax Tips for Business Owners

There are only a couple more weeks left in tax season, and if you are a small business owner and have not yet filed, the clock is ticking.

If you anticipate a tax liability and must file for an extension, remember an extension only extends the filing deadline to Oct. 15—it does not extend the time in which you must pay your 2011 tax liability. You can pay the anticipated liability when you file for the extension.

Here are some useful tips to make tax filing go smoother for small businesses:

  1. Report bank interest from your business accounts on Schedule B of your 1040. Do not include this on your Schedule C because it is not subject to self-employment tax. If you are a partner in a partnership or a shareholder of a Sub S corporation, the bank interest will flow to you from Schedule K-1 and end up on Schedule B.
  2. When preparing your financial statements for inclusion in your tax return, make sure you include deductions for items paid for in cash or with personal funds or a personal credit card. These items should be totaled and added to your books on a monthly basis so that you do not lose out on valuable deductions.
  3. Review and retain documentation and pictures to support commonly red flagged items, including meals, entertainment, travel, and vehicle expense. You don’t need to keep receipts for meals and entertainment tabs for less than $75, but make sure you note the date, place, who was present, the total and the business purpose for each transaction. It’s actually easier to just keep the receipt.
  4. If you have a home office, do not forget to include often overlooked items such as homeowner’s association dues (HOA), housekeeper, repairs and maintenance, and homeowner’s insurance along with your rent or mortgage interest, utilities, capital improvements, and property taxes.
  5. If you sold or disposed of any business assets such as vehicles, computers and peripherals, furniture, fixtures or equipment, be sure to let your tax pro know how much the sale was worth and when it occurred.
  6. Charitable contributions made from business accounts (excluding C corporations) belong on Schedule A, Itemized Deductions. If you are a partner in a partnership or a shareholder in a Sub S corporation, the amounts of charitable contributions will flow to you from your Schedule K-1. Charitable donations of business assets and inventory should be reported to your tax pro. These transactions are write offs for your business. However, your time spent in a charitable activity, no matter how valuable it is, is valued at zero by the IRS-- even if you miss work.
  7. When presenting your business data to your tax pro, it’s best to provide your QuickBooks data file or printouts of profit and loss, balance sheet, and general ledger. If your records are not computerized, be sure to provide the information in a format that easily translates to the business schedules. You will want to list expenses by type: office supplies, rent, materials, etc. Do not provide information by month or in a scattered format.
  8. When declaring business income remember that gross receipts do not include loans from lending institutions or family members, transfers of money from your personal accounts, or credit card cash advances. These forms of income are not taxable.
  9. If you have employees, be sure to provide the yearend tax package from your payroll processing company to your tax pro to ensure the proper amount of wages and salaries as well as employer-paid payroll taxes are included on your business tax return. If you provide health insurance to your employees, check to see if you qualify for the small business health insurance credit.
  10. Make a list of questions to ask your tax pro so you can better understand tax law and the tax benefits that belong to you and your business. Investigate the IRS website for tax information to help you make business decisions at www.irs.gov. The search engines are useful. There are many publications on topics for small business.

Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook