With the tax filing deadline fast approaching, some small business owners are working through their financials and combing through the tax code. No matter the type of business you operate, a few tax tips can mean a lower financial liability and a return that’s more strongly in your favor. Here are some last-minute suggestions to help you get the most out of filing:
Deducting your home office
While you spend plenty of time at your place of business, you may do a lot of work at home, too. If you have an area of your home set aside for making phone calls, balancing the books, ordering products and other activities, you can write it off on your taxes.
The QuickBooks Resource Center said there are two important points to consider when determining eligibility for the home office deduction:
- The space must be used exclusively for business activities. That means you can’t count the part of the room you use for household storage, or the complete square footage of a large room if you only use a corner of it for your office.
- The total deduction can’t have a higher monetary value than the gross income derived from the use of your home for business, after expenses are taken into consideration.
Additionally, there are two ways to calculate the this deduction:
- The simplified method, which allows you to count each square foot used, up to 300 total, at $5 per foot.
- The standard method, which is significantly more complicated, but removes the square-footage limit and allows you to account for expenses like mortgage, rent, utility bills and insurance.
This deduction isn’t for everyone, but it definitely pays off when you meet the criteria.
Some wages and contractor payments are deductible
Small Business Trends highlighted this distinction, noting that companies organized as sole proprietorships, partnerships and LLCs can’t count wages paid to owners or partners as deductions. However, they can deduct payments made to employees. Similarly, payments made to independent contractors are deductible – just make sure your organization has issued the correct documentation, form 1099-MISC, to any such contractors.
With the tax deadline fast approaching, it’s impossible to do any advanced planning for this quarter. However, you can start organizing and looking into the next quarter soon after you file for this one. Business.com said quarterly estimated tax payments are a common burden among nearly all small business owners. While this financial responsibility will continue to be significant going forward, advanced preparation can make it more predictable and easier to manage.
Business.com suggested making and sticking to a schedule for transferring the funds needed for quarterly estimated payments into the appropriate account. Owners can also set up an account with the Electronic Federal Tax Payment System to automatically withdraw the money for quarterly estimated payments.
Planning ahead also means taking future financial concerns into account. If you want to expand or change your business in the coming months, consider alternative business loans as a source of funding.