Come the month of January/February and the nation prepares itself for tax sessions. It is time to check that all your financial records are in perfect order. The Certified Public Accountant who will start corporate accounting can call you any time and ask for your spontaneous cooperation if certain papers to prepare the actual audit results are missing. Are you ready? Still, worrying if 2012 will be an expensive Tax-year? Follow the below-stated tips to prepare yourself better for the tax-return file.
This is a great tactic as it allows you to enjoy tax benefits by protecting your personal assets and possessions from your business’ sponsors or financers. This you can simply do by listing your business as an entity with the state. Being an entity of the State increases your brand value and authenticates you as a trustworthy and reliable entity to both the clients and the IRS. In order to enjoy this kind of tax benefit or tax break, you need to undergo paperwork proceedings with the Secretary of State. This process is completely different and is in no way similar to the process of filing with the country records office for an assumed-name certificate. Anyone with such a paper gets permission to conduct business under an assumed or imaginary name. If the firm is recognized as a legal entity then it attracts some amount of costs which is normally capitalized for tax purposes and considerable amortization is done for a period of 15 years. The first tax tip states that for the current year if the total start-up expense for a firm does not exceed $50000 annually then up to $5000 can be deducted from the expenses.
Business owners need to keep track of their expenses
The domain of tracking expenses covers home, office, auto, and client development expenses. All these expenses are integral to the development of the business and as such is considered to be an integral part of it. The costs incurred on these heads are liable to be deducted from tax but to get the benefits there are certain rules to be followed. The IRS will ask you for the mileage bills in cases of business automobile usage. It is very well known that small businesses overstate automobile expenses and so bills must be kept for the actual information. If you fail to keep a record of your transport cost then the IRS can decline a small or major part of your deduction from auto expenses. Just like auto and home-office expenses, client development costs are also subjected to some specific rules. In matters of deductible client development costs, there must be a clear mention of time, date and place – these include details such as when you went to meet the client, the business contact’s name and the business you thought of generating as a direct effect of your expenditure. Unreasonable client development expenditures are not considered and only 50% of the business meal prices and other client entertainment expenses are deductible.
Small business owners need to invest in equipment
There is a provision of a total tax cut of $139000 on total business equipment expenses ranging between $560000 and less. This is calculated annually. If in any case repair extends the life of equipment or the equipment is used for a different cause other than the requirement of the company, then the cost will be regarded as an improvement that is entitled to be capitalized and depreciated for the purpose of tax deduction.
Need to collect past due accounts
If you are running a proper business you must be well aware that for some obvious reasons there may be a few clients who will refuse to pay you the due money. The work will become easier for you if you have some valid documents to prove your claims such as a receipt, contract, or written slip which documents the fact that these people owe you money. This will place you in a position to exercise your right to collect past-dues. For speeding up the collection process write a note to your client requesting him to clear off their payment and if they express their inability or refusal to pay then you can place your claim on this amount as a “bad business debt loss” for tax purposes. But the debt has to be appropriate and on business grounds. Only then will it be granted for a tax deduction by the IRS.
The need to protect payroll taxes
Beware of using the payroll taxes for financing any kinds of business operations or proceedings such as clearing the dues of the creditors and suppliers. This is one common mistake that small businesses commit. Payroll taxes are strictly inspected by the IRS and in cases of tax-default or evasion, the IRS can also freeze your personal assets. Even though you have established yourself as an organized business firm the IRS will not entertain any reason while calculating payroll taxes.