Numerous businesses overpay their taxes every year by overlooking various tax deductions.
Keep Proper Records and Understand Available Deductions
Proper record-keeping year-round is the first step to ensure taxes are filed accurately. Save essential paperwork that could be needed to back-up deduction claims, should there be an audit. Keep in mind that tax credits and deductions change each year.
Avoid Common Audit Traps
It is very important to be aware of potential red flags which could include:
- Classifying Independent Contractors: Independent contractors and employees are not the same. It’s vital to know the difference. In the eyes of the IRS, misclassification can be seen as an attempt to avoid payroll taxes. Non-compliance can bring penalties and back taxes.
- Home Office Deduction: This is a very specific deduction, which not all home-based businesses qualify. Check with your accountant to make sure you are eligible to claim this deduction and what specific expenses may be deducted.
- Large Miscellaneous Deductions: If you claim a large amount of itemized deductions or miscellaneous expenses, relative to your income, the IRS could get suspicious. 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. Maintain separate bank and credit card accounts for business and personal use, and keep good records.
Qualify for Health Care Tax Credit
A small-business owner can qualify for a 2014 health care tax credit of 50 percent if the business meets the following criteria:
- The average annual wages are less than $50,000 per person
- The business employs fewer than 25 full-time-equivalent employees
- The business contributes at least 50 percent to the employees’ self-only health premiums
- The health insurance is purchased through the Small Business Health Options Program Marketplaces
The key to maximizing your time and return is preparation and knowledge. Always ask questions of people you trust, then fact check those answers at irs.gov.