I had a morning meeting with my accountant, which meant she had plenty of time to talk with me about small business taxes. (She gets busier in the evening during tax season since people try to do it after work.)
She was very happy that I had prepared an Excel spreadsheet with revenue and expenses. Although it took me about 4 hours to do a detailed spreadsheet beforehand, it meant that she could focus on accounting and tax strategy instead of sorting receipts.
Some of her tax tips:
- Schedule 179 can be used to depreciate most new assets in one year. I like to do that with items that I replace every year, like notebook computers and cell phones. You need the name of the item, date purchased and price.
- It’s important for each business to show a profit at least some years, otherwise the IRS may consider it to be a hobby and disallow expenses. One way to ensure a profit is to only make purchases after enough revenue is collected to pay for them. Another is to get somebody else to pay for things like conferences and travel.
- Items that include food or travel as a component can attract scrutiny because what you eat is not tax-deductible. It can make cruise trips trickier to account.
- If you own one phone and use it at all personally, only the business long-distance calls are tax deductible. To fully deduct it you need to use it only for business and have an alternate method of making personal calls. Recently I use Skype and YM for personal calls, and my cell phone only for business. (Same restriction applies to computers.)
- state.gov has maximum rates of per diem allowances for travel in foreign areas, which apply to all U.S. Government employees and contractors.
- She recommends setting aside some book-keeping time each week and using Quicken.
- Resident employees get a W2 if you withold taxes for them, 1099 if not, by end of February in following year. Nonresident aliens are to receive a IRS 1042-S form on or before March 15.
- learn more about taxes. Take classes and read books. Hang around accountants. She uses the 1040 Quickfinder® Handbook Q40 book.
- when mailing federal and state tax forms, there are different addresses depending on whether you will pay additional taxes or receive a refund.
- federal tax refunds are mailed only for previous years, while state can still be direct-deposited