It’s that time of year again, with the due date for tax filing just around the corner. Working for yourself is ideal in many respects, but when it comes to tax time it can be a headache.
Many W-2 employees have already filed their tax returns and are enjoying hefty refunds while you, lucky business owner, are sorting through receipts, and constructing accounting records, but it doesn’t have to be painful if you use Quickbooks, TurboTax, and follow these tips.
If your business is incorporated and reports on the calendar year basis, as most do, your corporate tax return is due on March 15. If you own a partnership, LLC or sole proprietorship and you are not incorporated, your tax return isn’t due until April 17 this year.
If you miss those deadlines, you can apply for an extension for filing, but do you really want to have your taxes hanging over your head all summer? Best to knuckle down and get it done right now, if you can.
But in your rush to pull everything together for last-minute filing, don’t overlook some important deductions.
Organize your receipts – If you have tax receipts stashed here and there, carefully gather them together in one place and make a list of them. Add that information to the accounting records you create from your check register and credit card statements, being alert for duplications. Don’t ignore these extra deductions: tossing out $100 of deductible receipts is like throwing $30 in the trash. Don’t forget to include end-of-year credit card purchases. They are deductible when you charged them, even though you didn’t pay the credit card statement until the next year.
Home office deduction – Many business owners work from home – if you have space in your home dedicated to business activities, it is likely you are entitled to a home office deduction. TurboTax will lead you through a series of simple questions to be sure you qualify for the deduction. Take the deduction if you qualify – there is an urban legend that claiming a home office deduction will target you for an IRS audit, but that simply isn’t true.
Auto expense – Even if you work from home, you probably use your vehicle to visit clients, run to the post office or purchase supplies. Add up those trips and claim a deduction for the miles.
Save for retirement – If you’ve claimed all your deductions but your tax bill is still high, consider contributing to an IRA, SEP or SIMPLE. Though pension plans have to be established before year end, IRAs, SEPs and SIMPLEs can be set up and funded any time before the due date of your tax return. TurboTax will compute the maximum contribution you can make, but even if you contribute less than that you still will enjoy some tax savings while securing your future retirement.
Hire your children – Now is the time to begin planning for next year’s tax filing. If you have older children, hire them to do office clerical duties and other routine tasks for your business. Children can earn income up to $5950 in 2012 if you claim them as a dependent before they have to file tax returns, and children employed by their parents aren’t subject to social security and Medicare taxes if the business is operated as a sole proprietorship or a partnership between the parents.
Pay estimated taxes – Unlike W-2 employees, business owners don’t have taxes withheld from their income, so to avoid penalties you are required to pay estimated taxes. When you prepare your return, TurboTax will ask you if you want to compute the estimated taxes you must pay for the rest of the year so you won’t owe penalties when you file your tax return next spring.