How complicated is filing taxes for a small business?
Edward Karl, vice president of taxation of the American Institute of CPAs, said federal tax laws are so complicated, small-business owners need to hire an accountant to protect their companies from audits and ensure that they pay no more taxes than they are legally required to do.
Because April 15 falls on a Sunday and April 16 is Emancipation Day, a local holiday in the District of Columbia, April 17 is the deadline to file your small-business taxes this year.
He said if businesses can't finish before April 17, they'll need to file for an extension. He suggested checking out the IRS website, www.irs.gov, to download the proper form.
"If you owe money, then you'll need to estimate the amount and pay it with the extension," Karl said.
Though filing taxes can be stressful, there are some things you can do to ensure you file properly, avoid audits, and claim the right tax deductions.
Among the most important is keep good records. Tax advisers and accountants constantly preaching that proper record keeping is the first step to ensuring your taxes are filed properly.
Another is to understand what deductions a small business can take. One reason small business owners pay more in taxes than necessary is that they don't take advantage of all the deductions they're legally allowed.
Often that happens because they can't prove they are qualified.
The most common deductions for small-business owners include entertainment, travel, meals, capital assets, home office and health insurance, the Washington D.C.-based institute said.
Small-business owners are also more likely to get the IRS' attention than others. Some red flags include claiming deductions that exceed a business owner's income for more than one year, also a home office, which are allowable only under specific circumstances.
There are dozens of tax rules that apply to small businesses and their retirement plans, equipment purchases or leases, payroll, insurance, charitable contributions and health insurance.
If you are waiting until the last minute, there are several changes to the tax code that could translate into a larger refund this year for equipment and other capital purchases.
For example, there is the Section 179 expense deduction that applies to this year's return. Small businesses can expense up to $500,000 of the first $2 million of property bought for use in a business.
Such property includes computers, office equipment and vehicles. Generally Section 179 expenses do not include land o investment property.
Karl said an extension of Section 179 is usually done to try to get money back into the hands of small-business owners during a struggling economy. A business can take advantage of the full Section 179 write-off only if the business made a profit, according to the Internal Revenue Service.
Many small businesses and tax-exempt organizations that provide health insurance to their employees now qualify for a special tax credit, along with tax breaks for startup costs, bonus depreciation and changes to the Federal Unemployment Tax Act.
Karl said a lot of businesses make the mistake of talking with their accountant only at tax time, which is "not the time to do tax planning." He said it should be done as early in the fiscal year as possible to consider all the different rules and deductions.
Karl believes business owners who do their own taxes are missing deductions and business opportunities.
"It's an accountant's job to help advise a small business owners so they can focus on running their businesses," Karl said.
Contact reporter Chris Sieroty at email@example.com or 702-477-3893.