In between preparing for spring selling season, staying in touch with past clients and educating your buyers on what 2013 has in store, it’s easy
to forget that a certain date in April is right around the corner (Hint: Monday, April 15 is Tax Day). Jeffrey Field (Certified Financial Planner®, Field Law, pc) says, first it’s important to remember you’re a business owner with tax advantages not available to regular W2 employees. Below are five steps to ensure your financial house is in order, so you can take full advantage of every tax break you’re entitled to as a small business owner.
1.) Start early: Getting started now is one of the best things you can do; it gives you more time to locate and prepare documents and financially prepare for potential payments. Also, the further into tax season you are, the less likely you are to find qualified tax professionals (due to their increasing workload), according to Alfred P. Adovasio (Certified Public Accountant, Adovasio Financial).
2.) Save hundreds: It’s imperative to maintain careful records of all travel and expenses that relate to the conduct of your business, to take advantage of every allowable deduction you’re entitled to, according to Steven Packer (CPA, Duane Morris, LLP). Denise Winston (Founder, Money Starts Here) says, grab an envelope and start saving all of your receipts now! When you work for yourself, a $100 receipt for business expenses is the same as a $100 bill. Remember to write “who”, “where” and “why” on each receipt, so you are prepared to prove each purchase was a business expense. Stay organized and on top of all your expenses during the year; many commission based business owners pay extra money in taxes because they don’t stay on top of their expenses.
3.) Work with a CPA: If you don’t have a tax background or have experience preparing your own taxes, do-it yourself tax software can be overwhelming, According to Adovasio, “I can’t begin to tell you how expensive a mistake it is to go this route. Using a CPA may cost you a bit more up front, but could end up saving you thousands! Additionally, a CPA can tell you if your business is established correctly (S Corporation vs. Sole Proprietorship), so you can take full advantage of the tax code and receive your maximum refund.” Adam Shay (CPA, Adam Shay CPA, LLC) says, the tax benefits on establishing your business as an S Corporation can also save on Social Security and Medicare taxes.
4.) Do your homework: Determine which categories of expenses you can write off and make a file for each one: professional fees and dues, out-of-town travel, auto travel, telephone expenses, continuing education, equipment purchase, supplies, etc., said Winston. Collect all of your receipts, proofs of purchase, bank statements, canceled checks and credit card statements and set a few hours aside to sort receipts and paperwork into the correct categories. Winston recounts, “ Be sure to save copies of emails for out of town travel that state the reason why…I just passed a tax audit and the emails I had about business travel were the saving grace!”
5.) Maximize your retirement contributions: This may reduce your tax burden if you’re a self-employed real estate agent. An SEP (Simplified Employee Pension) IRA is very flexible in making contributions one year to the next; you can contribute up to about 20% of your income capped at $50,000 for 2012 and $51,000 for 2013. For more deductions and savings, using a Solo Defined Benefit Plan and a Solo 401(K) can allow over $100,000 in contributions, according to Damian Rothermel (Certified Financial Planner®, Rothermel Financial). Please note: Like many retirement plans there are a number of details to each plan that have to be followed or the deductions will not be allowed.
It’s never too early to plan ahead; work with your pro-active tax planner who can review your unique situation and start preparing for 2013 taxes now, summarized Field. Being proactive now, may make a difference on the 2014 tax bill, so plan accordingly.