Code complexities tax business owners

The complexity of the tax code continues to pose significant challenges to small businesses.

The National Small Business Association reports that 64 percent of small-business owners spent more than 40 hours per week last year dealing with federal taxes, up from 57 percent in 2011.

On average, small-business owners spent more than $5,000 to complete their tax forms and mail them off to the Internal Revenue Service.

The NSBA said the tax code is too complex, and small-business owners have few options in trying to simplify things and keep their tax liabilities to a minimum.

But there are ways to reduce a small business’ tax burden. Here are several suggestions from the American Institute of CPAs.

Additional information can be found at irs.gov.

EXPENSES: Keep a daily diary or log of your expenses throughout the year. It will be less intimidating to prepare your return and easier to identify all legitimate business costs if you have a log that’s up to date and detailed.

DEDUCTIONS: One of the principal reasons small-business owners pay more taxes than necessary is that they don’t take advantage of all of the deductions they’re legally allowed. That often happens because they can’t prove they are qualified. The most common deductions for small-business owners include entertainment, travel, meals, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records.

TRAPS: A small-business owner may do some things that are more likely to get IRS attention than others. For example, claiming deductions that exceed your income for more than one year is a definite red flag. The home office deduction, which is allowable only under specific circumstances, may be another red flag. That’s not to say you shouldn’t claim every deduction you’re entitled to claim, only that you should be especially careful when you do so.

EQUIPMENT: For tax years beginning in 2012, a small business may deduct as much as $500,000 in equipment purchases as long as the business spends $2 million or less for equipment for the year. The cost of repairs may also be deductible even if the repair does not extend the useful life of the equipment.

PAYROLL: One of the most common and costly tax-related problems for small-business owners is that they use the payroll taxes withheld from employees to finance business operations. Not only does the IRS often go after a small-business owner’s personal assets to collect the unpaid payroll taxes, but it also may attempt to assess significant penalties.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893. Follow @sierotyfeatures on Twitter.