Preparing for tax season is really a year-round task. The first tip is to update financials on a monthly basis, using a streamlined software or cloud-based system.
This way, everything you need is all in one place when tax time comes around. Well organised businesses are often better positioned to avoid penalties associated with missing or inaccurate information, therefore minimise their tax bill.
Here are four more ways to reduce stress during tax time, and get the most out of your return.
Know your credits & deductions
Small businesses usually benefit from a large array of tax credits. From special allowances for research and development, to programs that supplement wages for student employees and apprentices, you can save you a bundle on taxes by knowing which credits apply to your business.
Small businesses also need to be savvy about deductions. After all, you want to keep as much of your hard-earned revenue as possible. Therefore items you may be able to deduct include:
- Classes, seminars or conventions you attended to improve your job related skills;
- Unused inventory that you’ve donated to charity (a good reason to consider donating your overstock, rather than paying for storage); and
- Capital assets, such as office furniture, equipment, and computers.
Speak to your accountant about the full range of available deductions you can plan for each tax year.
Be careful about what you claim
If your business is run from home, you may be able to claim a certain portion of expenses like utilities, insurance, property tax, and rent. However, you’ll need to keep good records and all relevant receipts, to justify why you’ve allocated these business costs to your home office.
The also applies to your home office computers and mobile phone expenses. You'll need to show how you have separated the personal and professional use of these assets when you claim them as work expenses, to tax authorities.
To submit your drive time as a work related expense ensure you submit a log of your business-related mileage. Therefore you can clearly demonstrate how your personal vehicle was used for professional purposes.
Don’t miss the deadline!
This should go without saying, but every year businesses are hit with large penalties for filing their taxes late. Missing the deadline can have a range of negative repercussions, including:
- Added interest to amounts owing, plus a late payment penalty;
- Losing your refund claim;
- Loss of credits toward retirement or disability benefits; and
- Delay of loan approvals (lenders need a copy of your filed tax return in order to process your application).
Seek expert advice well in advance
It was found in a 2015 survey, that a full quarter small business owners don’t understand their tax obligations. Furthermore, 27% only speak to their accountant at the last minute before the filing deadline.
Although software has made it simpler for business owners to file for themselves, it still can't replace the thoroughness and accuracy provided when using an expert accountant.
Small business owners should consult a professional well in advance, to ensure they’re getting the most out of their tax return, and that all documentation is fully complete. On the bright side, accounting fees are often tax deductible!