It’s tax season once again and I hope you haven’t missed the April 15th filing deadline.
One of the most important issues facing start up and established businesses is surrounded around taxes.
Here are seven basic tax tips to help those that have been bitten by the entrepreneurial spirit to understand how they can seize the opportunity to gain a better understanding of their tax compliance requirements.
- Seek professional advice – Identify a tax accountant who has experience dealing with business issues and who understands how to apply the tax rules. The tax laws are always changing, so seek professional guidance of someone who can help you understand these rules.
- Ask for an extension – Preparing your tax return is going to be a bit more complicated once you start a business, therefore if the April 15 tax deadline is looming and you are not ready to file, consider filing an extension. An extension changes the filing deadline for your personal return to Oct. 15. It’s also a way to avoid the late filing penalty. However, it does not extend your time to pay. Keep in mind: the tax deadline for your business may be different than the one for your personal income tax return.
- Hire a good bookkeeper – Through my years of experience working with business owners, I try to stress the importance of a good record keeping system. How you maintain your records can impact your tax liability in a positive or negative way and it can provide evidence to the Internal Revenue Service if you ever get audited. I’ve seen many business owners unable to track their expenses and owe thousands in taxes. Taxes are an indefinite expense for every business owner, therefore it makes sense to have a good record keeping system in place to help track income and expenses accurately to help manage what you can and should report. Hire a good bookkeeper to help you manage this process.
- Personal expenses – Personal expenses are NOT deductible, generally you cannot deduct personal, living or family expenses. If you have an expense for something that is used partly for business and the other part is personal, then divide the total cost between the business and personal to determine the business part that is deductible. On a positive note, there are some expenses that can be deductible (i.e. health and medical, charitable donations, sales and real estate taxes, etc.) on Schedule A on your personal return, if you itemize deductions.
- Meals and entertainment – Generally, you can deduct up to 50 percent of your business-related meal and entertainment expenses. This limitation applies to those expenses incurred while traveling away from home on business, entertaining customers at your place of business, a restaurant or other location. It also includes attending a business convention or reception, business meeting or luncheon. These expenses can include the meal charge, taxes, tips, cover charge for admission to a venue, rent paid for a room to host a dinner or cocktail party.
- Home office deduction – If you use part of your home for business, as a home office or for warehousing space, then you may be able to deduct expenses for the business use of your home. This deduction applies to homeowners and renters, however, there are two basic requirements to claim the deduction. The requirements to meet the home office deduction are (a) regular and exclusive use of the home for business, and (b) principal place of your business.
- Start-up and organizational costs – Costs incurred prior to the actual formation and operation of the business are referred to as start-up and organizational costs. This normally includes costs to create, investigate or acquire an active trade or business. Examples of organizational costs include expenses of temporary directors and organizational meetings, state fees for incorporation privileges, accounting fees for services incident to the organization, and legal fees, such as for drafting of documents, minutes of organizational meetings, and terms of the original stock certificates. Startup costs includes advertising, wages and salaries, professional and consultant fees to start the business. A business can expense in the year purchased up to $5,000 for start-up costs and up to $5,000 of its organizational costs. Any costs in excess of the $5,000 threshold must be amortized over 15 years (180 months). It is important to make the election to amortize startup and organizational costs to your return for the first tax year you are in business.
These tax tips should help you make sense of some of the tax rules, laws and to avoid any complications. I hope these tax tips have been helpful. Please feel free to contact me for more information about the tax tips discussed or other tax planning matters affecting you and your business.
Gerri Lazarre, CPA, MsTax is a certified public accountant and principal with TriMergeCPA and TriMergeTax in Miami, Florida. Lazarre specializes in providing professional advisory services in the areas of accounting, audit and tax planning to individuals, businesses and nonprofit organizations for more than 13 years. For more information, please visit www.TriMergeTax.com and www.TriMergeCPA.com. Connect with Gerri on social media at Twitter.com/TriMergeCPA, Twitter.com/TriMergeTax or https://twitter.com/GerriLazarreCPA.