American Institute of CPAs Provides 10 Tax Tips For Small Business Owners
Thursday, March 01, 2012
Some small business owners think there's only one word (or at least the
only one that can be mentioned here) when it comes to filing federal taxes:
confusion. The American Institute of CPAs says the truth is that there are ten
words you have to keep in mind in order to be sure you pay no more taxes than
you're legally required to pay.
1. Expenses. Keep a daily diary or log of your expenses throughout the
year. It will be less intimidating to prepare your return and easier to
identify all legitimate business costs if you have a log that's up-to-date and
2. Deductions. One of the principal reasons small business owners pay
more taxes than necessary is that they don't take advantage of all of the
deductions they're legally allowed. Often that happens because they can't prove
they are qualified. The most common deductions for small business owners
include entertainment, travel, meals, capital assets, home office and health
insurance. Travel miles, meals and entertainment deductions require that you
maintain a diary with daily entries that tie into receipts and other records.
3. Traps. There's no easy way to say this: A small business owner may
do some things that are more likely to get IRS attention than others. For
example, claiming deductions that exceed your income for more than one year is
a definite red flag. The home office deduction, which is allowable only under
specific circumstances, may be another red flag. That's not to say you
shouldn't claim every deduction you're entitled to claim, only that you should
be especially careful when you do so.
4. Retirement. You must have earned income each tax year to qualify for
a tax-deductible retirement plan. If you do, the funds paid into the retirement
plan are deductible and they may also grow tax-free until retirement.
5. Equipment. For tax years beginning in 2011, a small business may
deduct up to $500,000 in equipment purchases as long as the business spends $2
million or less for equipment for the year. The cost of repairs may also be
deductible even if the repair does not extend the useful life of the equipment.
6. Payroll. One of the most common and costly tax-related problems for
small business owners is that they use the payroll taxes withheld from
employees to finance business operations. Not only does the IRS often go after
a small business owner's personal assets to collect the unpaid payroll taxes,
but also it may attempt to assess significant penalties.
7. Insurance: If you have health insurance coverage for your employees,
check to see if you are eligible for the small business health care tax credit.
The IRS website has a page describing the credit, eligibility requirements and
how to claim it. Or, check with your local CPA.
8. Veterans: An expanded tax credit is available to business owners who
hire certain unemployed veterans. Don't overlook the credit if you hired a
qualified veteran who started work on or after Nov. 22, 2011 or you plan to
hire one before Jan. 1, 2013. The IRS website has details.
9. Contributions: Many small business owners donate goods or services
to charitable organizations throughout the year. Be sure to get a valuation for
any non-cash items your business donates to charity so you'll have the records
you need to support the deduction for your contributions.
10. Help. If you are unsure about anything related to your tax
obligations under the law, you should seek professional help from a certified
public accountant. Meeting with your CPA quarterly to go over your specific
situation will allow him or her to best advise you on what to do to keep your
tax bill...and the stress over it...as low as possible.
More tax saving strategies for small business owners are available on
the AICPA's 360 Degrees of Taxes website.
SOURCE: American Institute of Certified Public Accountants