No one welcomes tax time. Small business owners especially are besieged by a mountain of paperwork. But this is a good time to start looking at your strategies for this year and begin strategies for next year that will save you a lot of time and effort. Here are six tax tips every business owner should be aware of.
1. Keep good records and record as you go - Hopefully you've been saving your receipts throughout the year because you will need those receipts if you do get audited. Unfortunately many small business owners get into the habit of tossing their receipts in a box, and then they have to go through that box and itemize them when tax time rolls around. However if you keep your records as you go, tax time becomes a breeze because you'll have an instant record of how much you spent on what.
2. Know when it's time to outsource your tax preparation. Many business owners put off doing their taxes because they just don't have the time to do it. Others dread the arduous task of trying to figure out which numbers go where on the forms. It's probably better to outsource your taxes to someone who knows all the tax laws. Who knows how many tax deductions you might be missing? Only a tax professional stays up to date with changes in tax laws so that you can minimize the impact taxes have on your business.
3. If you do get audited, don't worry, just call a professional. Being audited isn't fun, but if you have a professional helping you, then it isn't so bad. Just keep good records and call for help if you do get audited. You should also remember that being audited doesn't necessarily mean you did anything wrong.
4. Ask your tax professional which accounting software is best to use if you're keeping your own books. Some tax professionals use a certain type of software, like Quickbooks, that is available to small business owners. By using the software they use, all you have to do is send them your electronic file when tax time comes.
5. If you use part of your home as an office, make sure that you include all direct and indirect expenses. This means homeowners association fees, repairs, maintenance, homeowners insurance, rent, interest on your mortgage, property taxes, and more. Ask your tax professional to give you a checklist of things to include.
6. Report the interest from your business bank accounts on Schedule B rather than Schedule C. This is because the interest isn't subject to the self-employment tax. On the other hand, if you are either a shareholder of a sub-S corporation or belong to a partnership, then you'll see your interest go to your Schedule K-1, although it will still be reported on Schedule B.
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