Friday, February 1, 2013

Get on the right TAX Track for 2013


2012 IS OVER and many small businesses are still smell the fumes as they scurry to collect and organize their records in preparation for tax filing. You’re one of the lucky ones if you have maintained accurate records and tracked expenses all year long for a smooth 2012 filing!  If not, today you can begin anew by implementing procedures and practices to avoid this pain for 2013. While it may be too late for 2012, you can better plan NOW for 2013.

The IRS recently announced that in 2013 it intends to increase the number of audits conducted on small businesses in order to help close the $450 billion tax gap. So, keep that in mind when reviewing those questionable expenses that you think may cause doubt and critique. No need to bring Uncle Sam’s posse into a fray!  Understand the deductions to find out which ones you can qualify for or ask a tax professional for help (my preference and recommendation)!!

Small Businesses Audits Expected to Increase in 2013
  • The IRS intends to focus on small businesses that claim a total income of $1 million or more and will closely scrutinize noncompliance issues associated with international business transactions.
  • Small businesses that they have 25 or fewer employees and if their employees earn an average of $50K or less will be able to qualify for a tax credit. There is also a “qualifier” related to the portion of healthcare costs paid.
  • Small business owners who work from a home office will use a simple formula for 2013 tax returns. You will be able to write off $5 per square foot of home office space (up to 300 square feet and with a maximum deduction of $1,500). No more 43-line form to figure out this deductible. Yay!
  • The IRS will examine how small business owners classify the people who work for them. If you use independent contractors, you are not required to pay Medicare or Social Security taxes, healthcare or retirement benefits. Be careful! The IRS will be looking for those businesses that are not accurately classifying their staff in the attempt to reduce their taxes or avoid taxes by misrepresenting fringe benefits that they offer their employees.

Some Deductions That You Don’t Want to Overlook

---If you use your car for business, you can deduct some of the costs to maintain it. There are two ways to claim vehicle expenses.
  • actual expense method - you need to keep accurate records of your actual business-related expenses connected with maintaining your vehicle.
  • standard mileage rate method, you may deduct the standard mileage rate per business mile driven (2013 standard mileage rate increases to 56.5 cents per mile).

---If you are in the process of launching your business, you can write off up to $5,000 in startup costs and another $5,000 in “organizational spending” during the first year that your business is launched if you have less than $50,000 in expenses for either category.
---Books that you purchase to help you conduct business without the services of legal or tax professionals are fully deductible. Alternatively, services from lawyers, tax experts or other consultants are deductible.
---If you entertain current or potential customers, you may deduct 50% of what you spend as long as it is related to your business.
---If someone doesn’t pay you for a product he or she has purchased from you, the cost of product is deductible. However, if you provide a service and your client doesn’t pay, you can’t deduct the value of the time you spent on the client. Ouch!
---If you take out a personal loan for business purposes or use credit for business purchases, the interest and carrying costs are fully deductible.
---If you must move because of your business (or job), some of the moving costs may be deductible. However, the new workplace must be at least 50 miles away.
---If your business is an LLC or partnership, your business can make a charitable contribution, and you are allowed to claim it on your individual tax return. If your business is a corporation, your corporation deducts the contributions.

Best Practices
  • The best way to prepare for your taxes is to meticulously track your expenses and income all year long. To minimize the risk of an audit, use a professional tax software (like TurboTax, TaxCut, H & R Block) as a tracking tool and save all related documentation (receipts, mileage logs and repair tickets).
  • Consult with a qualified tax professional, especially complex returns!
  • Maintain your business records separate from your personal records.
  • File your returns on time.

Resources


Taxes are inevitable, and they can be a headache if you don’t take the time to track all expenses related to your business practices. If you feel that filing taxes is becoming too complicated for you, don’t hesitate to hire a professional to help you prepare them!! It’s well worth the investment to ensure that you are taking advantage of all tax benefits currently afforded to small businesses!

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