Tax Preparation 101: What You Should Know

If you’re a business owner, you know getting your taxes ready is a time consuming exercise with pitfalls you’d love to avoid. A mistake can cause a potential headache with the IRS that could take a while to resolve. To avoid problems with your business tax preparation, here are some handy tips that will organize and focus your efforts.

Records

Keeping good records will not only assist in preparing your taxes, but you may need them to prove something in case the IRS gives you a call. Good records should state how much you have paid for all your business equipment, vehicles, or any purchased assets. Also record how you use business-owned or personal vehicles for business purposes as opposed to personal matters. Even after the taxes are completed, retain tax records for at least three more years. These records will be needed in case of IRS inquiries or audits.

Employees versus Independent Contractors

Very importantly, clearly distinguish between your regular employees and any independent contractor you hire. Employees are subject to certain tax withholdings and federal protections that independent contractors are not, and the IRS may get suspicious if you treat an independent contractor too much like an employee. Not only will the IRS investigate your business, but other federal bureaucracies may come knocking on your door, so retain good records of the activities of everyone that does work for you.

Accountants

Utilizing the services of a qualified accountant can relieve the pressure of business tax preparation. Seek a well reviewed accountant that specializes in your business, as they will know the ins and outs of the tax code as it pertains to your industry. They can also alert you to deductions you can take, even small deductions that you might overlook, like educational classes or magazine subscriptions. You also should consult with your accountant on federal laws that affect your business, such as the Affordable Care Act.

Local Taxes

Finally, don’t overlook tax requirements of your state, city or county. You should keep track of where your business has conducted activities and see if the rules of that community require you to pay taxes. Be especially aware of where you sell your goods or services, as that community may charge a sales tax on your sales or labor.

Making sure you have complete records can be a lifesaver in your business tax preparation, but when in doubt, you should ask an accountant or a tax expert for advice. No one wants to make a mistake in filing business taxes, so seek qualified help when you can, and you’ll save yourself some anxiety and future problems.