3 Things to Remember When Filing Taxes for the First Time

It’s your first year outside Corporate America and, in addition to attending to your mile-long to-do list, your taxes need to be filed. Dread not. Tax time doesn’t need to be painful, especially if you remember to do the following.
Pay attention to deductions
Business owners love deductions and for good reason; even the smallest ones can make a world of difference to a company’s bottom line. Sit down and document every possible expense, recommends Deborah Sweeney, CEO of MyCorporation, a Calabasas, Calif.-based company that helps small businesses incorporate with the government.
Start with your physical location. If you work from home, calculate the percentage used for your business, then deduct that percentage from your mortgage and utilities. Added bonus: You can deduct 100 percent of any renovations done exclusively to your home office.
Next, look at your traveling expenses. “Do you travel anywhere in pursuit of your trade?” asks Sweeney. This includes mileage.
In addition, she says small-business owners can deduct a large portion of the actual expense of going into business. For 2011, that deduction is $5,000 (it was $10,000 in 2010 and there has been talk about increasing the limit, but it has yet to happen).
Business-related education is an added deduction available to small-business owners (i.e. conferences, certification renewals, etc.).
“Another one people don’t think of is bad debt,” Sweeney says. “If someone stiffs your business, you can deduct that cost. This usually applies to businesses with hard goods, not those that provide professional services.”
For more information on deductions, check out the IRS checklist.
Consider your audit risk
Audits will not spell the end of your business as long as you have proper documentation.
“Small business owners can get excited when they start up and deduct everything,” Sweeney says. “That is fine as long as the deductions are legitimate and they’ve been properly documented.”
Keep receipts and write down your mileage. You can now track your mileage using smartphone applications, like Trip Cubby and MileBug.
Know your deadlines
“Business taxes are due March 15, a month before personal taxes,” says Ian Aronovich, co-founder and CEO of GovermentAuctions.org in Great Neck, N.Y.
Don’t freak out yet. This law applies to corporations and S corporations, specifically, not to Limited Liability Partnerships (LLCs), Partnerships or Sole Proprietorships. If your company fits into the first two categories and you aren’t yet ready to file, consider asking for an extension.
“You can get a six-month extension, but you must file for the extension by March 15,” says Aronovich. Extensions can be electronically filed by using IRS Form 7004.
Beware: This form allows you to extend only the date of your filing, not the date of your payment. According to Aronovich, business owners are required to pay their estimated taxes by the original filing date. Failing to pay can result in IRS penalties.
For more information on filing deadlines, check out the IRS breakdown.
Previous article: Should a Small Business Do Its Own Taxes?  | Next article: How to Minimize What You Owe and Maximize Your Return
Katie Morell is an independent business writer and editor, who over the past 10 years has covered topics ranging from business and politics to travel and social justice. Her work has appeared in a variety of regional and national publications, and she has served as an editor for Meetings Media.
Photo credit: iStock

14:39 by Robert dawne · 0

10 Things You Didn't Know About Your Taxes

March 15 is just around the corner. Which begs the question: What don't you, as a small-business owner, know—but should know—about filing your taxes?
With that goal in mind, we asked Mike Scholz, tax director at Wegner LLP CPAs & Accountants—an accounting firm based in Madison, WI, that focuses on individuals and small businesses—for help in identifying the top 10 things that small-business owners don't know about their taxes.
1. Classify your workers correctly. Scholz cautions any small-business owner to beware paying staff as independent contractors. “Worker classification (employee vs. independent contractor) will be a hot topic for the IRS this coming year,” he says. “The IRS recently released training materials for their examiners, so make sure you are classifying workers correctly. Last fall the IRS announced a settlement program for those businesses that wish to re-classify their workers. Under this program, there is substantial relief from potential past payroll tax liabilities for eligible employers that treat workers as employees going forward.”
2. Late fees can be steep. So be sure to avoid penalties by paying the company payroll taxes and filing tax reports on time. “The IRS penalties for late payments and late filings are horrendous,” says Scholz. “The IRS is serious about collecting all delinquent payroll taxes. The IRS will pierce the corporate veil if the corporation does not pay payroll taxes and go after the responsible officer's personal accounts.”
3. Send out your 1099s. There’s a new disclosure this year related to 1099 contractors to beware of, says Scholz. “Business owners will see two new questions on their tax forms this year,” he says. “The first asks: Did you make any payments in 2011 that would require you to file Form(s) 1099? And the second follows up with: If 'Yes,' did you or will you file all required Forms 1099?” The point is that the IRS is making a rather blatant reminder that Form 1099s should have been sent to people or companies they've paid money to—particularly to individuals, LLCs and partnerships that were paid more than $600 for services.
4. Tax return extensions can be your friend. “The extension of your business return also extends the time to make company profit sharing contributions for the year,” says Scholz. For example if you extend your 2011 S Corporation return until September 15, 2012, you also get an extension to make your 2011 profit sharing contribution to the same extended due date. Plus, the tax filing extension is automatic (no reason needed) just file the one-page form.
5. Don't forget to see if you qualify for the small-business healthcare tax credit. “For 2010, only 15 percent of small businesses claimed this tax credit, so it's worth looking to see if the business qualifies for it in 2011,” says Scholz. “The tax credit is generally available to business owners who pay for at least half the cost of employees' insurance coverage, have fewer than 25 employees and pay salaries that average less than $50,000 annually. You can still amend 2010 returns if the credit was missed on the original return.” (Read more on healthcare.)
6. There are tax credits available for hiring veterans. You can qualify for a credit that's worth up to $5,600 for hiring a long-term unemployed veteran, $2,400 for hiring a short-term unemployed veteran and $9,600 for hiring an unemployed veteran with a service-related disability, says Scholz. “Note that these veteran new-hires need to be certified by state workforce agencies,” he says. “The IRS is working on streamlining the paperwork process to expedite the certification process once a veteran is hired.” (Get more tips on hiring for targeted tax credits.)
7. Take advantage of current year net operating losses. Current year net operating losses (NOL) can be carried back two years and forward 20 years. “These loss carrybacks can generate tax refunds in those past years where the business paid tax," says Scholz. “There are strategies to increase an NOL through equipment expensing elections (Section 179 or bonus depreciation). Many businesses have large NOLs generated during economic downturns. Proper planning will ensure the best tax result, so that NOL benefits are not allowed to expire.”
8. The IRS can request copies of your QuickBooks files. “The IRS has been training revenue agents on how to use QuickBooks and instructing their field agents to request your QuickBooks company file as a part of the audit,” says Scholz. “When a QuickBooks file is provided, it includes not only the current year records but all years' transactions included in the software’s data file. We suggest looking into technology solutions that can block those tax years not under audit to minimize records available to a snooping IRS agent.”
9. Not all business meals are subject to a 50 percent disallowance. “Generally, only 50 percent of business meals and entertainment expenses are deductible,” says Scholz. “There are exceptions which allow a 100 percent deduction for meals as follows: trade-show costs, conferences and receptions that are open to the general public. Employer-provided benefits that are relatively infrequent, minor and administratively difficult to track, such as doughnuts, picnics and costs associated with the company holiday party as well as the summer picnic, are also 100 percent deductible. “Another meal that is 100 percent deductible includes where the business is reimbursed for the expense,” says Scholz. “For example, if a business takes a client to lunch and then bills the client for that lunch in a separate line item on the invoice, then the business can fully deduct that meal.”
10. Don't rely on your credit card statements. The statements alone are not adequate substantiation of a business expense. “The IRS requires that any legitimate deductible business expense must be ‘both ordinary and necessary,’" says Scholz. “An ordinary expense is one that is ‘common and accepted’ in your specific trade or business type, and a necessary expense is one that is also ‘helpful and appropriate’ for your trade or business.” But beware that having an expense item on a card statement for purchases made at Office Max or Office Depot doesn't automatically qualify the purchase as a legitimate business expense. “The IRS suggests that businesses keep the original store receipts that itemize the details of the items purchased,” says Scholz.
Previous article: 3 Most Common Mistakes Made When Filing Business Taxes  | Next article: Top 5 Tools for Filing Business Taxes
Darren Dahl is an independent business writer, who regularly writes about entrepreneurship for Inc. magazine (where he is a contributing editor), The New York Times and AOL.  He has also worked with several high-profile authors, such as Keith McFarland on The Breakthrough Company, as well as intellectual property experts Mark Blaxill and Ralph Eckardt on their book, The Invisible Edge.
Photo credit: iStock

14:35 by Robert dawne · 0

Business Taxes Decoded 2012

Let's face it: Most of us are daunted by tax season. This series on business taxes presents insights from some of the leading voices in small business today to help answer common tax-related questions and help clarify the filing process. This exclusive series features advice from Barbara Weltman, TJ McCue and a host of leading independent journalists in taxation and business.
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Should a Small Business Do Its Own Taxes?
Maybe. It depends on a variety of factors. Here's what you need to consider.

3 Things to Remember When Filing Your Taxes for the First Time
Filing business taxes for the first time? Don't fret. Just remember to do these three things.

How to Minimize What You Owe and Maximize Your Return
Twenty-six-year veteran small-business accountant Frank Gutta gives his expert advice.

How to Choose an Accountant You Can Trust
Be sure to ask these four pertinent questions when interviewing your potential adviser.
3 Most Common Mistakes Made When Filing Business Taxes
No matter how you get your taxes done, steer clear of these common mistakes that are made year after year.

10 Things You Didn't Know About Your Taxes
Mike Scholz, tax director of a Wisconsin accounting firm, shares some tax tips for small-business owners.

Top 5 Tools for Filing Business Taxes
Here's our roundup of tools small businesses can use to file their business taxes.

Are You Really Inviting an Audit If Your Office Is In Your Bedroom?
Contrary to popular belief, deducting the cost of your home workspace doesn't call for an automatic audit from the IRS.

The Future of Online Sales Tax
Billions of dollars in taxes on e-commerce transactions go uncollected every year. But that may soon change.

Planning Ahead: 5 Ways to Save Money on Your 2012 Taxes
It's already time to prepare for next year's taxes. Tax expert Barbara Weltman shares some money-saving tips for 2012.

Infographic: A Snapshot of Business Taxes in the U.S.
Curious about how your business taxes compare to your industry's average? Our infographic sheds light on that and more.
Kalina Mazur is the executive editor of OPEN Forum.

14:29 by Robert dawne · 0