Tax season may not be upon us yet, but it's certainly around the corner. And, as every good accountant worth their salt will tell you, getting ahead of your obligations and doing some early tax planning and preparation will stand you in good stead once reporting time comes around.
Whatever your business structure and reporting requirements there are several steps you can take now to get your small business tax obligations "ducks in a row" to help you maximize your deductions and sail
through tax season.
1) Gather Your Records and Check Your Books
Whether you are an independent contractor or growing small business, spend some extra time as the calendar year draws to a close examining your books and records. Make sure everything is accurate and up-to-date, and that records and documentation that help support the numbers in your tax return are clearly organized - this includes old tax forms, expense receipts, bank statements, etc. Read "Bookkeeping Basics for Small Business" to get a better understanding
of smart bookkeeping practices.
2) Understand What Deductions Can do For Your Small Business
Now is the time to increase your expenses so that you can maximize your business tax deductions before the end of the year. From stocking up on office equipment; making charitable donations; to paying bills early (utilities, phone bills, etc.) - all these affect your deductible bottom line.
Taking all the deductions you deserve can be a tricky business and, as a small business owner, getting it wrong can be costly. Not least of all when it comes to understanding what business tax deductions you are eligible to claim. Read my earlier post "*Tax Deduction 101 for Small Business" to understand the fundamentals of tax deductions. The comprehensive Small Business Expenses and Deductions portal on Business.gov provides a brief overview of expenses that qualify as tax deductions, with links to resources that provide clear guidance on deducting andcapitalizing your expenses.
3) If Cash Flow Permits - Defer Income Earned
Depending on your business structure, you may be able to make some inroads to reducing your overall taxable earnings for the current tax year by deferring any payments you receive for services or products rendered during until the first week of January . This will defer your tax owed on this income until April 2011. If you are a sole proprietor, LLC, S Corporation, or in a legal partnership, income deferral can make good sense - especially if you don't foresee any significant changes to your income tax rates in the new year. If unsure, make sure to check with a professional tax
However, if you have any doubts about the solvency or future of your clients, don't defer - collect those payments soon as possible.
4) Understand Your Obligations as an Employer - January and February are Busy Reporting Months
If you have hired employees for the first time, or have used independent contractors in the past year, it's worth familiarizing yourself with tax reporting obligations and deadlines that will hit early in the new year.
Employees - As an employer you must provide your employees with W-2 forms by January 31 (usually the next business day if the 31st falls on a weekend as it does in 2010). W-2 forms must also be filed with the Social Security Administration (SSA), showing wages paid and taxes withheld for the year. This must be accompanied by your W-3 form (which shows the total of all W-2s) by the end of February.
Independent Contractors - If you have paid an independent contractor or other business who is not your employee at least $600 during the year, you should have been maintaining W-9 forms, contractor's business licenses and certification of insurance during the year. The end of January is the deadline for sending each independent contractor a completed copy of Form 1099-MISC to report payments made to that contractor.
Read Hiring Independent Contractors for more information about your obligations.
You can download all these forms directly from this Essential Government Forms for small businesses on Business.gov. To help small business owners stay on top of key tax deadlines, each year the IRS provides a free tax calendar- download the 2010 calendar here.
5) Set-up or Contribute to a Retirement Plan
By setting up and/or making a contribution to a 401(k), Roth IRA, SEP, or KEOGH plan - you can reduce your annual taxable income. Check your plan's allowable contribution limit for the year and talk to your accountant about what makes sense for your business.
6) Take Advantage of the Tax Resources Offered by the Government
The good news is that, more than ever, the government is reaching out to small businesses to help address their tax questions and provide free tax advice. From online advice to in-person and Web-based training, there are some very specific resources available from Uncle Sam to help small business owners understand their tax obligations as well as tax changes that may impact them in the new year.
Read "Free Small Business Tax Advice from Uncle Sam" and explore the resources available to help reduce the burden of tax preparation on your small business.
Here is a selection of recent blog posts on a variety of small business tax topics:
*Note: Hyperlink directs reader to non-government Web site.
Message Edited by CaronBeesley on 12-22-2009 11:35 AM