Tax season can be a stressful time for anybody, but it has the potential to be especially hectic for small business owners. Having more planning involved in your tax preparation comes with the territory when you own your own business, but there are plenty of precautions that you can take to ensure that you’re on the right track. Here are several things to keep in mind when planning your tax preparation in Austin, TX.
Keep Records Updated
Keeping track of your business “on paper” is a great place to start planning for taxes before the season ever comes about. It’s important that you keep all of your records and transactions up to date at any given time, but especially before taxes. If there is anything in your records that requires updates or edits, be sure to have it completed and accurate before you begin your tax preparation. While making errors are a part of the human condition, it is not okay for your business records to be littered with mistakes and out-of-date information.
It’s advisable to review all of your records each week of the year to be sure that you’ve crossed your t’s and dotted your i’s. That way, you don’t have to spend hours and hours before filing your taxes, cramming to make sure that you’re ready to file. Rushing causes mistakes.
Keeping track of your income is another important thing to keep in mind when planning your tax preparation in Austin, TX. There is a lot that your tax professional can do for you, but it’s crucial that you’ve accurately reported your income. Some aspects of income to look at are receipts for services performed or products sold, sales records or invoices, and business accounts and interests. When it comes to interest regarding your business checking account, the 1099-INT might be something to look into using.
Cataloging your various business expenses might be the most difficult part of ensuring that you’ve claimed all that you’re entitled to this tax season. There are a great few things that you can claim on your taxes when it relates to the running of your business. There is advertising to consider, business phone services, internet services related to work, computer repairs, transportation (taxi, plane, mileage, train), lodging, food during business travel, business insurance, any commissions that were paid to contractors (with the 1099-MISC form), professional fees related to legal and accounting work, office supplies, office space rent, the home office deduction, and other business utilities and maintenance.
These expenses need to be recorded and backed up with receipts and invoices. Avoid misplacing or disposing of your expense records even after you have filed your taxes for the year. If for any reason you are audited, these records may very well help clear you of wrongdoing.
When it comes to small business taxes, there is a lot to consider with deductions. There are rules for what can be deducted and what can’t, as well as how much a deduction is allowed. For example, with food costs related to business travel or business meetings, only a percentage of the total can be deducted on your tax return.
If you’re overdoing your deductions, this might encourage the IRS to look into the situation, and if they think that something looks fishy, they’re likely to pursue an audit. Your tax professional should be able to assist you with accurately reporting your income and expenses to where nothing appears suspicious when your return is being reviewed.
Separate Work from Personal
The advice to keep work and personal life separate couldn’t be more appropriate when it comes tax preparation and small business. Combining your business bank account with your personal bank account sounds like it would add a lot of confusion to the tax equation, because it would, and it does. Your income and your expenses become much harder to track and accurately maintain when they’re combined with your personal finances.
Make sure that you keep your affairs separate. That way, you won’t have to spend countless hours differentiating personal costs with business costs in your statements. If you have a bank account that is only used for business, the guesswork is knocked away, and it makes for running a might tighter, neater ship.
For Tax Preparation in Austin TX, Double Check
Again, making a mistake is human, but it’s very important to limit this when it comes to reporting your taxes. In order to ensure that you’re doing everything in your power to report accurately, double-check everything. It takes more time than you’d like, yes, but if looking over all of your records more than once reduces the possibility of being audited, it’s worth the time. Make sure that you as up-to-date and reliable as you can be.
When double-checking the records that you already have, make sure to look for anything you might be missing. Remember that small business expenses can add up, and if you’re entitled to them, you might as well include them in your report. When it comes to income, everything matters. Even very small payments can be significant when combined. As long as you’re reporting everything accurately, and checking with your tax professional, you should be off to a good start.
The Internal Revenue Service is an extremely attentive machine, but they’re efficient at what they do. If you’re a small business owner, you’re probably at an increased risk of having the IRS look into your tax records. If you’re reporting everything to the height of your ability, following the legal conditions required of you, and working with an experienced tax preparation professional, the tax season doesn’t have to be a headache.
If you’re in the market for a reputable tax firm, consider West Austin Tax for your income tax questions and services. You can visit their website for information, video resources, or to schedule an appointment with one of their professional CPAs. You can also call (512) 330-9400 for more support.
*West Austin Tax is not a CPA firm.