Small business owner looking at laptop

5 Tax tips for small business owners to get ready for Tax Day

Save yourself some Tax Day stress by following these five tax tips for your small business.

Gathering business records. Looking over balance sheets. Reviewing receipts. Gathering more records. Reviewing more receipts. Preparing for Tax Day doesn’t just seem tedious – it is. No wonder small businesses report spending around 2.5 billion hours working on their taxes, which is the equivalent of 1.25 million full-time jobs.1


Admittedly, there’s no secret for avoiding all the work (and headaches) that come with preparing taxes for your small- or medium-sized business (SMB). But whether you hire a tax professional, or file your taxes on your own, these tips can help you get ready for Tax Day – and make the most of potential deductions.

 

Tip #1: Keep in mind these commonly misunderstood business deductions

Business and personal expenses can easily – and understandably – blend together when you’re an SMB owner. Here are three common areas that can create confusion:  

  • Travel: Your daily commute isn’t deductible, that’s a personal expense. But, travel to and from work for an off-site meeting is. When it comes to travel, ask yourself, “Is this travel essential for completing my work?” If the answer is yes, it might also be a deductible expense.
  • Home office: If you’re using a part of your home exclusively for business purposes, you can write off the expenses related to that space: The interest on your mortgage, insurance, utilities, repairs, and depreciation are all deductible. But what if your home office doubles as the family rec room? Expense for a home office can only be deducted if the space is used exclusively and regularly for business purposes.
  • Dining and entertainment: Business meals are part and parcel with maintaining and building strong client relations. Not only are those lunches and dinners an excellent way to form a connection with your client, but 50 percent of the meal’s cost can be deducted. The meals for company parties and picnics, however, are fully deductible. But what if you treat a client or your employees to a baseball game? Although they’re related, entertainment expenses are not deductible.


Bonus tip: As a rule of thumb, deductible business expenses are
ordinary and necessary. If you’re unsure about whether a purchase constitutes business expense, hold onto the record for the transaction and consult a professional accountant.


Tip #2: Pick one payment method for business purchases

Keeping track of every purchase can be cumbersome – especially smaller ones. Consider using one payment method for all business expenses. For example, you can use a small business credit card and get supplementary cards for employees. When it’s time to file your taxes, all your business purchases are in your monthly invoices.


Bonus tip: With the Amazon Business Prime American Express Card, you can earn rewards or choose flexible payment terms like 5% Back or 90 Day Terms on U.S. purchases at Amazon Business, AWS, Amazon.com, and Whole Foods Market with an eligible Prime membership. Earn 5% Back on the first $120,000 in purchases each calendar year, 1% Back thereafter.

Tip #3: Watch out for little deductions – they add up

The tax code changes often, making it difficult to know what’s deductible from year to year. While there are rarely drastic changes to the tax code, you can reasonably assume some purchases will remain deductible, it’s possible to miss new deductions, especially on smaller purchases, including:

  • Petty cash expenses: Those breakfast burritos you bought with cash for a morning meeting are more than a tasty treat – they’re a tax deduction. Keep a record of all cash purchases your organization makes.
  • Document preparation expenses: If your organization paid a professional to help develop a business plan or fill out a loan application, you can deduct those expenses. Did you have them printed, collated, and bound? Those expenses are deductible, too.


Bonus tip: For a full review of deductions, consult Publication 535 Business Expenses from the IRS or speak with a tax preparer.

Tip #4: Remember to make quarterly estimated tax payments

Businesses that expect to owe more than $1,000 in taxes are required to make quarterly payments to the IRS. Most small businesses, even sole proprietorships, fall within that range. Although paying estimated taxes can cut into your cash flow, it’s important to stay on top of those payments. By doing so, you’ll avoid IRS penalties, namely being charged interest on your back taxes.


If you’re concerned that your organization won’t be able to set aside enough cash to make quarterly estimated payments, consider applying for a business line of credit to maintain cash flow.


Bonus tip: Check out the IRS tax calendar. Use this helpful tool to map out your entire fiscal year and set reminders for each tax payment.

Tip #5: Consider using credit to make large purchases around tax time

Have you been putting off a large equipment purchase or making a sizable investment because your organization doesn’t have the cash on hand? One approach is to make the purchase using expended payment terms. That way, you can delay payment until after Tax Day while still being able to deduct the purchase from your taxes.


Bonus tip: The
Amazon Business American Express Card offers Extended Payment Terms that allow you to take extra time to pay, interest free. Terms apply.


There are plenty of issues that SMB owners address on a daily basis, so keeping track of every expense can quickly get lost in the shuffle.


By planning ahead and using tools that make it easier to keep track of every purchase, tax time can be manageable – and you’ll be able to focus on the things that are most important to your organization, your customers.  


1https://web.archive.org/web/20180923062141/https:/smallbusiness.house.gov/uploadedfiles/9-14-16_williams_testimony.pdf

 

Quick tip for easily tracking business expenses - use a business credit card.
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