Small business tax tips
Many entrepreneurs ask me what are my top small business tax tips. Well, tax planning is an ongoing process that changes with the needs of your business. But, if I had to emphasize a few points they would be the following:
Keep good records
Proper record keeping year round is the first step to ensure taxes are filed accurately. I know we are in the digital age but electronic records need a backup. Either make several copies of your electronic records or have a paper copy somewhere. Remember you can be audited up to three years after you file your return. For most entrepreneurs business occurs at a fast pace. As such, sometimes you can’t remember what took place one week ago much less three years ago. If you should find yourself of your company being audited the IRS does not allow deductions based on the fact that you are a good person and you have a good business that helps the local community. All deductions are based on substantiation of expenses. The burden is on you to prove that you can take the deduction.
Understand who is an employee vs. an independent contractor
There are rules that define who is considered an employee versus and independent contractor. Many small business owners are caught off guard in an audit when the IRS re-categorizes their independent contractors to employees. Thus, they have a huge tax bill and lots of penalties and interest. In today’s economy many small businesses are experiencing very tight finances. The decision you make today not to hire an experienced tax professional may cost you thousands of dollars in the future.
Evaluate whether offering fringe benefits such as health, vision and child care assistance.
Many small business owners cringe when I mention offering fringe benefits such as health, vision and child care assistance to their employees. They don’t understand that these benefits can help them save money. Plus, employees will know that they are appreciated. Instead of giving a standard raise to your employees that may put them in a higher tax bracket and reduce their take home pay you can give them a real benefit while boosting employee morale. Small businesses can also benefit from giving employees free tax seminars to help them answer questions they may have. When is the last time you heard of an employer offering this benefit? Not many do. But, those who do engender a lot of good will among employees and thus their business. If you take care of your employees they will be happy to come to work and more than happy to refer people to your business.