Tax Essentials for Small Business

Date: April 02, 2014

With April 15 coming up fast, now is the time to focus on tax planning. Most small-business owners rely on an accountant or other experienced tax advisor to prepare returns.  But it pays to know the basics when it comes to deductions and record-keeping and document retention requirements.  Remember, while a professional’s service can relieve you of much of the paperwork, it does not release you from all responsibility.

Deduct, deduct, deduct

Make sure you don’t miss out on valuable business expense deductions.  The complexity of the tax code comes in part from the fact that Congress appreciates that business taxation offers more than just revenue.  The tax code can also stimulate the economy by encouraging businesses to invest and expand.   This is where business deductions come into play.

There are a number of expenses that you might be entitled to deduct.  Make sure you take advantage of all that apply to your business.  Common deductions include salaries, taxes and licenses, legal, accounting and other professional expenses, interest on business debt, advertising, rent, utilities, business cards and stationary, charitable contributions, Internet and e-mail services, postage, and bank fees.  More complicated deductions include the following:

  1. Travel – All expenses incurred during business travel are deductible; deductible expenses will include costs related to transportation, baggage and shipping, lodging and meals, dry cleaning and laundry, business calls, rental fees, and tips.
  2. Entertainment – Most businesses are entitled to deduct a percentage of entertainment expenses.  Use a standard appointment calendar to log all deductible entertainment expenses.
  3. Meals – Meals can be deducted for travel or business-entertainment purposes.  Meal deductions are normally limited to 50 percent of the cost.
  4. Capital Assets – Business property that will last more than one year is a capital asset.  You can deduct capital assets by either depreciating or expensing the assets under Section 179 of the Internal Revenue Code.
  5. Health Insurance – Corporations can deduct health insurance as an ordinary and necessary business expense. 
  6. Automobile – Deductions can be calculated by using the IRS’s standard mileage rate or the actual operating expenses related to your business.
  7. Retirement Plans – To qualify as a participant in a tax-deductible retirement plan funded by your business, you must have earned income each tax year in which you wish to participate.

You should consult with your tax advisor to learn more about these and other deductions that your business might be eligible to claim.

Document, document, document

It pays, literally, to keep good records.  The IRS requires that your books show your gross income, as well as deductions and credits. Therefore, maintain a detailed and organized record of your business transactions and supporting documentation. 

For more information on record-keeping requirements registered members of NFIB.com can download a Small Business Guide to Document Retention at www.NFIB.com/legal.

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