Don’t look now, but April 15 is right around the corner. As the filing day approaches for most businesses, if you haven’t started preparing your business tax return yet, now might be the time to get busy. Consider these six steps as you start thinking about preparing your business taxes:
- Contact your CPA or accountant.
This is the busiest time of the year for most CPAs and accountants, so don’t wait any longer to set up a meeting to discuss your tax return. If you don’t currently work with a tax professional or are looking for a new one, ask other business owners in your professional network for a recommendation.
However, don’t let your rush to make up for lost time cause you to settle for the first tax professional who says he or she can meet with you. Do a little research to make sure any CPA or accountant is qualified and credible before hiring him or her — for example, check with your local Better Business Bureau or the state board of accountancy.
- Get all your paperwork organized.
Before meeting with your tax professional, you should plan on spending some time gathering and organizing all of your tax forms and documentation. Start with last year’s tax return, which will serve as a good roadmap for preparing this year’s return.
Also gather bank account and business credit card statements from the past year, accounting records (including the dates you made estimated tax payments last year and their amounts), payroll reports, asset depreciation schedules, and Forms 1099-DIV and 1099-B. You should receive these IRS forms from any banks or brokerage firms reporting dividends and distributions you received last year.
If you are self-employed, you should receive a Form 1099-MISC from any client from whom you received more than $600 in compensation last year. These should have been sent out by January 31, so if you haven’t received one from a client yet, call and ask them about it.
- Figure out your deductions.
Business owners may be able to lower their tax bills by thousands of dollars by claiming legitimate business expenses as deductions on their tax return. But doing so requires careful organization and filing of paperwork and receipts throughout the year.
Business expenses that may be deductible include (but are not limited to) the following:< >Contributions to qualified retirement plansHealth insurance premiumsOffice suppliesTravel expensesCharitable contributionsBusiness meals and entertainment (50 percent of these expenses are deductible)Capital equipment (including computers and software)Determine if you can take the home office deduction.
Many business owners and self-employed individuals who work primarily out of their home fail to claim this deduction for fear that it may increase the chances that they are audited by the IRS. But many experts say that even if this is true, it is not usually a good reason to forego this potentially valuable deduction.
To qualify for the deduction, your home office must meet the criteria specified by the IRS which includes use as your principal place of business and certain other uses. Gather information on such home expenses as your mortgage or rent, utilities, real estate taxes and home repairs to share with your CPA so he or she can determine the amount of your home office deduction.
- Calculate your automobile expense deduction.
Expenses you incurred last year in the operation of an automobile for business purposes may also be deductible. This deduction can be figured in one of two ways:< >Multiply the business miles you drove last year by 56.5 cents (the mileage allowance for 2013), orDeduct all your automobile expenses paid in 2013, including lease or loan payments, gasoline, insurance and maintenance.Contribute to your retirement plan for 2013.
Contributing to a qualified retirement plan is not only a great way to save for your future, but it may also help lower your current tax bill. And it’s not too late to make a tax-deductible contribution for 2013, as long as the contribution is made by your tax filing deadline (April 15, 2014, for most companies).
The 2013 traditional and Roth IRA contribution limit is $5,500 (or $6,500 if you’re age 50 or over), while the SEP contribution limit is $51,000 (or 25 percent of annual compensation) and the 401(k) contribution limit is $17,500 (or $23,000 if you’re age 50 or over).
For more detailed guidance on business tax filing, visit the IRS website.
City National, as a matter of policy, does not give tax advice. You should consult with your own tax advisor respecting your unique tax situation.