By Jody Padar
Tax time is just around the corner, but there is still time for small business owners to minimize taxes and maximize savings. Here are six small business tax tips to follow this year:
Tip #1: Talk to Your Accountant Year Round: This year’s tax season is 14 days shorter following last year’s government shutdown, making it even more critical to have your financials in order, and the sooner the better. However, this crunch time wouldn’t feel so squished if you had ongoing communication with your financial advisor. In fact, year-over-year, over 60 percent of accountants say the No. 1 mistake small businesses make is only talking to an accountant at tax time. This might not benefit the Johnny-come-lately in 2013, but it could make 2014 all the more bright.
Tip #2: Itty Bitty Business vs. Big Business: If you run a small business out of your home (and I mean small business), you may be eligible for the New Office Home Deduction, which allows you to write off $1,500, no itemization required. This is best for itty bitty businesses (side businesses and the like), but is not recommended if you are a consultant or freelancer working out of the home.
Tip #3: Money for the Taking: Money doesn’t grow on trees so make sure you are not forgetting some very important deductions this year. Xero’s recent survey of over 400 accountants revealed that depreciation and out-of-pocket expenses are the most often overlooked small business deductions, followed by auto expenses. So save those dinner and gas receipts, write off those iPhones and tablets, and enter your property depreciations– they will add up quickly in the end.
Tip #4: Treat Yo Self, But Not Excessively: Double-check your deductions before you submit your taxes, especially if you are one of the 36 percent of small businesses that claim excessive income deductions on their taxes. Don’t overdo it or you’ll find a very angry Uncle Sam knocking on your door.
Tip #5: Keep Your Lives Separate – Business and Pleasure Don’t Mix: Having separate credit cards for business and personal expenses is an easy way to keep bills separate and streamline things during tax time. Also, try to avoid using cash for business costs, as it makes it harder to keep track of expenses. Finally, where possible, have receipts emailed to you or take a picture of them with your smartphone.
Tip #6: Use the cloud to keep the rain away: The biggest mistakes small business owners make include not keeping their financial records up to date, not budgeting and forecasting financials annually and not meeting with an accounting professional regularly. These problems can all be avoided by using a cloud accounting solution like Xero that provides full financial visibility and connects small businesses to trusted accounting professionals who can answer any questions, big or small.
Jody Padar is a partner at Xero and the chief executive and principal of New Vision CPA Group.