April 15th is quickly approaching once again. It's around this time that the state of mind of many small business owners who have not yet filed their taxes shifts from mild worry to panic.
The best way to quell this anxiety is simply to work with your accountant to complete your taxes. There is still time to not only get your taxes complete before the windows close but also to make the most of your filing. There are a number of deductions, options and best practices that can bring about substantial tax savings.
The last-minute tax time tips outlined below were suggested by Xero accounting partners. This advice can help you get your taxes completed with time to spare and even save on money paid to Uncle Sam.
1. Take advantage of the section 179 depreciation deduction
Section 179 of the U.S. tax code allows businesses to write off newly purchased property or equipment all at once, as opposed to deducting the annual depreciation amount. Going this route can lead to significant tax savings for new equipment that was purchased in 2013. New vehicles are often used as the example for 179 depreciation deduction but really anything tangible is eligible.
This deduction is lower than it has been in past years, but if your business launched in 2013 you should still take advantage of 179. Chances are you purchased a lot of start-up equipment and you can see a portion of the money come back to you. Like all things taxes, there are many conditions that must be met that your accountant will be familiar with.
2. Know the difference between an independent contractor and employee
Small businesses that have independent contractors can benefit from less of a tax burden compared to those that have only full-time employees. Businesses are required to pay state and federal payroll taxes for each employee, including 50 percent of their staff member's Social Security and Medicare payments. By employing an independent contractor, you are not required to pay these taxes.
There are some clear distinctions between the two so be careful not to classify someone in an employee role as a contractor. In general, an independent contractor operates their own business and is hired to complete a specific project. An employee, on the other hand, works specifically for your company and is assign tasks at will by their manager.
3. Double-check your deductions
Before you officially file, take stock of all your documented business expenses from the past year to ensure you're not leaving money on the table. Travel, home office supplies, membership fees and education can all be written-off, provided they are true business expenses. Travel, in particular, can offer hefty tax savings, as 100 percent of hotel and transportation costs can be deducted.
While maximizing your deductions is important, don't reach for a write-off that just aren't there. If you are unsure on the validity of a deduction, ask your accountant.
4. Consider filing an extension
If you're feeling overly stressed as the 15th approaches, there is the option of deferring your tax filing to a later date. By completing IRS Form 4868 by the filing deadline, you'll buy yourself an additional six months to make sure everything is ideal.
Many people are surprised to find out that there are no special conditions that must be met in order to qualify for an extension. You are not even required to provide the IRS with a reason. You are, however, required to pay your estimated taxes by April 15th. While the extension buys you more time to file, it does not allow you to put off paying what you owe.