2 days ago
Eight Must-Have Items On Your Small-Business Tax Checklist
Vlad Rusz is a CPA at Centaur Digital Corp , helping busy business owners efficiently manage their accounting systems. getty
Prudent small-business owners hire professional tax and accounting help to ensure accuracy. Unfortunately, even with professional help, a gap in information sharing can still exist between the two parties. A good accountant can bridge this gap and tease out relevant information from the business owner to ensure they are taking advantage of available tax strategies. Don't be put off by an intrusive accountant—they are probably trying to maximize your tax savings.
On the other hand, some small-business owners may only have an annual relationship with their accountant or tax professional, or even opt to prepare their taxes themselves. If you fall into this category, maximize your tax savings with the help of this small-business tax checklist.
For many small businesses, filing taxes doesn't require a balance sheet. This document, however, is necessary to ensure correct bookkeeping. Reviewing the balance sheet is the first step to ensure that the figures are accurate and make sense. It's also the report that ties directly into data from bank, credit card and loan statements, so it should be a simple process to verify the balances. Incorrect balances on the balance sheet are a clear indication of errors in bookkeeping elsewhere.
Unlike large businesses, small-business owners typically have a good sense of their income and expenses, often without relying on formal bookkeeping. Thus, it's always a good idea to review the profit and loss (P&L) statement to ensure that the numbers are accurate and make sense. If your business typically nets you about $6,000 per month but your year-end P&L shows $1,000,000, you know that somewhere there was a mistake. 3. Cash Flow Review
Non-cash income and deductions can skew P&L statements, which can result in taxable income differing from the take-home income. This is especially true in a small business, where the owner's salary may not appear on the P&L. In contrast, the statement of cash flow only tracks cash and should outline what money came into and went out of the company. This is also where the owner can verify that the money they received from the business is accurate. 4. Tax Structure Analysis
The tax structure of a business typically doesn't change. Small-business owners should analyze their business tax structure every five years, at a minimum, to ensure they're utilizing the most favorable structure for their needs.
Many small businesses that operate from someone's primary residence can qualify for this simple deduction, so long as there is a dedicated space for business use. There are two methods of calculating the deduction: the actual cost method and the standard rate method. Be sure to use the one most favorable to you. 6. Business Vehicle Deduction
If you use your personal vehicle for business purposes, track your mileage and take the tax deduction. Similar to the home office deduction, there are two methods: the actual costs method and the standard mileage rate method. The standard mileage rate is easier to use and can even result in a larger deduction over time. 7. Health Insurance Deduction
Your health insurance can be deductible if you own a business. There are nuances based on tax structure, however. Consult with a tax professional to ensure you are correctly processing these payments so you can deduct them at the end of the year. 8. Section 179 Or Bonus Depreciation
When you make a large asset purchase for your business, you have a few options on how to depreciate those assets. The analysis of which option is best will depend not just on your current-year income but also on your projected future income. Consider all the data before simply writing off everything up front.
While there may be other important tasks on your small-business tax checklist, the eight items above can fill in the gaps to help you reduce mistakes and ensure you don't miss out on potential tax savings. With this checklist as a strong starting point, work alongside a competent tax professional to help minimize your taxes.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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