SBA tax tips could save Utah small businesses money, pain
To help small businesses avoid audits and claim the right deductions, the Utah district of the Small Business Administration is offering key tips aimed at easing the burden of tax preparation.
"It is important that [small-business owners] file properly," district director Stan Nakano said in a statement.
Ahead of the April 15 filing deadline, the agency advises that small businesses:
Keep good records • Proper record-keeping year-round is the first step to ensuring that taxes are filed accurately and that the paperwork is at hand to back up deduction claims should there be an audit.
Understand your deductions • Tax credits and deductions change each year. Which ones can you take? Do you have the documentation and original receipts to back them up?
Utilize the Small Business Jobs Act Tax provisions • Signed into law in 2010 by President Obama, the law has nearly 20 initiatives aimed at decreasing the tax burdens and providing savings for small businesses.
Also, become familiar with the recently passed tax incentives contained in the recent "fiscal cliff" deal. It included extensions of several tax incentives designed to spur innovation, support capital investment and make it easier to hire new workers.
Remember the tax credits within the Affordable Care Act • They will enable small businesses to cover up to 35 percent of the health premiums paid to cover workers. In 2014, the rate will increase to 50 percent.
Avoid common audit traps
It is important to be aware of potential red flags and act on them before the IRS does:
Classifying employees as independent contractors • Independent contractors and employees are not the same, and it's vital to understand the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes, and noncompliance can bring penalties and back taxes.
Home office deduction • This deduction is very specific and not all home-based businesses will qualify. Likewise, if you run your business from a commercial location and claim the home office deduction, you might trigger interest from the IRS. Know how to determine if you are eligible to claim it, and what specific expenses you can write off.
Large-sum miscellaneous deductions • If you claim a large amount of deductions relative to your income, the IRS will get suspicious. Likewise, if you bucket a large amount of miscellaneous expenses, you may raise eyebrows. Be specific and label every deduction.
Keep business and personal expenses separate • The IRS scrutinizes personal expenses that may have been claimed as a business expense, such as the use of a business vehicle for personal use. Be diligent about keeping good records. Maintain a separate bank and credit card account for your business.