by Michael Lodge
November 26th is Small Business Saturday, we encourage everyone to support their small businesses. If you are a small business here are 20 tax tips for small business. If you need help as a small business call our office at: 877.778.1770
1. Keep good records about who is an “employee” and who is an “independent contractor.”
2. Keep track of places where they may have a “physical presence” (even unknowingly), to properly comply with state rules governing sales tax collection.
The State of California has become very strict on individuals that own businesses in other states, businesses that are set up as corporations, LLC, S-Corps etc to handle any type of business, conducted only in that state, no the state of California. California has now said that if you live in California and if you make a phone call to the out of state company you are conducting business in California. And you wonder why so many companies are looking to move out of the state.
3. Invest in good accounting systems – those that track their records and regularly provide updates to new IRS rules.
4. Hire a tax accountant who has experience in their type of business, whether it’s a coffee shop or a construction business.
5. Keep good records on how much they paid for, and the date they placed in service, all business equipment, business vehicles, and so on.
6. Don’t consider using funds that they have withheld for employee payroll taxes (or any taxes, for that matter) as a short-term loan to tide them over during a shortfall in their working capital.
7. One of the biggest traps for small-business taxpayers is estimated taxes – paying them on time, calculating them correctly, and knowing the safe harbors that can protect them against underpayments.
Miscalculating any of these steps can be a major headache, so small-business owners should speak with someone, most likely a tax accountant or enrolled agent, who knows the rules cold.
8. If the owner’s spouse, child, mother-in-law, or other close relative works in their business, they should make sure that the relative abides by the same employment rules as their unrelated employees.
9. Select a “tax year” for their business that reflects the natural ebb and flow of their business’ receipts and disbursements. This way, they won’t get caught in a cash crunch when tax time comes.
10. They (or their accountant) should retain all relevant tax records for at least three years, and if their records relate to property and depreciation, they should keep them until the property is disposed of, plus an additional three years.
11. Keep detailed records on how they use their personal or business-owned vehicle for business versus personal purposes.
12. Hire a reputable third-party administrator (such as Fidelity or Vanguard) to manage their 401(k) plan and other tax-favored employee benefits.
13. Make sure that they (and their tax accountant) are familiar with the tax rules, including the favorable tax credits and deductions that are unique to their business.
14. If it becomes necessary for their small business to open a foreign bank account in order to pay vendors or others in another country, make sure that they (and their tax accountant) are vigilant in following the new rules on foreign bank accounts enacted in the Foreign Account Tax Compliance Act, or FATCA.
15. If their hope is that their business will continue after they die, under the leadership of another family member or designated heir, they should take steps to protect the business against a forced sale in order to pay inheritance taxes.
16. Don’t become foolishly emboldened by thinking that the IRS will have to “prove” that they have done something that doesn’t comport with the tax law. The burden of proof is always on them, not the IRS.
17. Become familiar with the tax rules surrounding starting, running, selling and shutting down a business. Determine whether they should operate as a partnership, an S corporation, an LLC, or a sole proprietorship. Their tax accountant should be closely familiar with these rules.
18. Have a one-on-one conversation with their accountant about the Affordable Care Act.
19. If they can’t pay the taxes they owe to the IRS, or another tax agency, they should contact their accountant right away. This situation won’t get better by ignoring it.
20. When someone pays them in cash, it doesn’t mean that the payment is nontaxable. The IRS has state-of-the-art statistical technology and models based on spending habits and bank accounts to build a case against alleged tax cheats.