Tax Tips for Small Business Owners

Save Money, Save Time, and Make Your Business More Efficient

“Nothing is certain but death and taxes.” What is also certain? Preparing for tax season–especially if you’re a small business owner–can be a real (and possibly expensive) pain in the neck.

But it doesn’t have to be. We talked to a several finance pros who work directly with small businesses, both during tax season and throughout the year, and asked for their best advice on how to save money–and time–while preparing your taxes.

The most common advice? Review your books throughout the year, not just when you’re getting ready to send them to your accountant. Business owners who review their statements at the end of each month are much more likely to catch discrepancies, missing transactions, and other anomalies that may be difficult to track down later on. Look for any big swings in revenue and double check that the number of transactions listed on any statements matches your own records. Keeping a clean set of books will not only save you a huge headache come tax season, it can also potentially save you a lot of money since your accountant won’t have to do extra work reconciling your finances.

Sitting down once a month also allows you to better keep track of expenses and possible deductions that you might miss if you wait until year’s end. Eleanor Siverts-Akerman, a CPA and the Director of Hutchinson & Walter PLLC in Bellevue, Washington, advises owners to keep track of mileage, client meals, and any out-of-pocket expenses used for the business that can be deducted. When tracking deductions, be sure to retain any receipts or documentation that can validate the transaction. “We always recommend that you substantiate,” Siverts-Akerman says. “Retain your records. If you’re going to take a deduction for it, make sure you can prove it.”

As you review your expenses, you should also look out for larger expenditures that make more sense to capitalize and depreciate. The tax law allows business owners to spread out the cost and deduction of an asset that is expected to last at least three years. Louis Friedkin, President of Friedkin & Associates, Inc. which provides accounting services to small businesses in Seattle, says depreciation may be appropriate for large expenses–things that cost $500 or more–since you can choose to either expense them immediately or spread the cost over time. Since the amount you spend on fixed assets will depend on the nature of your business, you should talk to your accountant to figure out what dollar amount makes most sense for you. “Decide on your threshold and stick with it,” Friedkin says. Keep in mind that the tax law that goes into effect for 2018 increases the deduction limit for depreciable fixed assets from $500,000 to $1 million and the total expenditure limit to $2.5 million.

While most people are focused on maximizing deductions and lowering their tax bill around this time of year, you should also use this prep time to look for other ways to save money. “If I were a business owner, I’d be seeing where I could control my costs,” says Siverts-Akerman. Particularly, look at your biggest expenses, like rent and payroll, but also other things like overhead and inventory. “A lot of business owners tend to buy too many supplies,” Siverts-Akerman says. “If you’re holding a lot of inventory, talk to your vendors to see about bringing in inventory as needed. See if you can renegotiate terms or how frequently you receive shipments.”

And, of course, take the time to review your credit card processing fees. These are some of the most opaque fees that business owners have to deal with, but taking a little extra time–even just a few minutes a month or a couple of hours during tax season–can allow you to spot opportunities to make money. Jon Lien, an accountant at Gravity, advises owners to take a look at a year’s worth of credit card statements to figure out the effective rate that they’re paying. To do so, simply divide the total monthly transaction amount by the total monthly fees to calculate your percentage. While small fluctuations from month to month are normal (since different cards charge different rates), if you notice a big bump from one month to another or a gradual increase over several months, that’s a sign your processor is charging you more for the service. Call up your rep and see if they can offer any cost-saving options.

Even if you don’t notice a big uptick in fees, it’s always good to check in with your rep to see if it’s time to renegotiate, especially if your company has grown. You might also be able to eliminate certain fees or change your fee structure depending on the nature of your business. For instance, your processor may charge you a monthly minimum fee of, say, $35, which is the minimum you’ll pay regardless of your monthly transaction volume. But if your rate is 0.5% and your total monthly revenue is $5,000, you should only owe $25. In other words, you’re paying $10 more than what you would owe if you were just paying your percentage. It’s possible your rep will waive or lower your monthly minimum in such a case.

If you want to take a deeper dive, take some time to Google the interchange rates for each credit card. These are the fees charged by companies like Visa and Mastercard, and they are publicly listed and don’t change from business to business. Make sure the number matches what you’re seeing on your statements. If it doesn’t, that’s a sign your processor may be hiding their fees behind the interchange fee. It’s not common, but it happens. “If you see that, you know you don’t want to work with that company,” Lien says.

Another piece of advice? Make sure your information is consistent across your paperwork. For example, Aryn Higgins, who oversees tax validation for Gravity clients, advises all merchants to make sure their legal business name and tax ID number match on their tax forms and their 1099k, the form processors send to their clients in January that shows their total processing volume for the past year. Inconsistent information can cause errors that complicate the filing process. In addition, Higgins advises making sure the number of transactions listed on the 1099k matches what you have in your books. Unfortunately, there’s no easy way to do this, though some processors offer their clients software that allows them to do so relatively pain-free. For instance, Gravity clients can use a tool called Access One, which they can set up by calling our support team.

Other than that, the best thing you can do to make sure your taxes are completed as efficiently as possible is to hire a professional bookkeeper or accountant to help you. “I see a lot of people wasting money and making costly mistakes that could be avoided if they took the time to work with their bookkeeper or accountant to monitor everything,” Friedkin says. “It’s often viewed as boring, so find someone who enjoys doing it to make your life easier and your business more profitable.”

By Brooke Carey, Content Editor

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