Five Tax Tips for Business Owners and the Self-Employed
Tax season is winding down, and I hope that all of you made it through without too much trauma!
In all seriousness, this is a great time to review your strategy in order to determine whether you need to change things moving forward. Perhaps your current strategy increases the chances that you will face an audit or an IRS dispute—or maybe it’s leading to overpayment of taxes.
Whatever the case may be, it makes sense to review your strategy as we move into 2013. This is particularly true for business owners and self-employed individuals because their tax filing requirements can be particularly complicated. In that spirit, today I’d like to share five critical steps that every business owner should keep in mind as they consider their tax strategy.
1) Withhold, withhold, withhold. The most common reason that the self-employed get into trouble with the IRS is because they haven’t been withholding money for taxes. Because you don’t have an employer to withhold taxes from each paycheck, it’s up to you to withhold on your own. Twenty percent is usually a good place to start.
2) Keep business expenses and personal expenses separate. Mixing up your business transactions and personal transactions can be an accounting nightmare—but worse, it’s a giant red flag to the IRS. Separate bank accounts and credit cards are highly recommended.
3) Keep accurate records of income. If the IRS audits you and finds that you didn’t report all of your income, you will face substantial penalties. Record your income and report it accurately. It’s not worth trying to hide income from the IRS.
4) Record your expenses and deductions. As a business owner, you are entitled to a variety of tax deductions—everything from vehicle mileage to a home-office deduction. But if you don’t record it, you can’t claim it. So keep ALL necessary records! This is vital in the event that you are audited by the IRS.
5) Don’t stress yourself out. Sure, dealing with the IRS isn’t pleasant. But if you are disciplined and keep careful records all year long, tax season doesn’t have to be a painful and stressful experience.
Questions or comments? Would you like to learn more? Or perhaps you need assistance resolving an IRS dispute? We can help- please feel free to contact us today!