Tasks Before You File Small Business Taxes Online
Articles about how to file small business taxes online do not have a lot to offer. If you are using an online tax service that has you doing the data input, you will be walked through each input page of the appropriate forms. These services give you input instructions and perhaps some limited advice, but their primary value is in getting the boxes filled and the forms submitted.
It is fine if you want to keep your records all year, maybe with the help of a bookkeeper, and then do the box-filling online. The challenge is whether you have the data properly collected, collated, and whether you made the right decisions during the year about business financial matters related to taxes. The actual time spent to file small business taxes online is the product of an ongoing system. Is your system efficient, accurate, and saving you tax dollars?
Before you think you are missing the forest for the trees about to be listed, know that these are not listed without a solution, so read on:
- IRS Lower Risk Bookkeeping – What does IRS lower risk mean? The IRS has a computerized tax return comparison system that takes mere seconds to see if your return has any outlier entries when compared to similar businesses. What does that mean? As an example, you have an expense category for “Technology,” or “Equipment.” When the computer compares your total deduction as a percentage of income to entries by other similar businesses, will yours get flagged? If the total seems significantly outside the norm, you will probably get a letter.
Is your bookkeeper or service properly categorizing expenses? Or, if you are your own bookkeeper, do you know that you are staying inside the lines for scrutiny?
- Major Purchases Deductions – Are you handling your major equipment, facility, or vehicle acquisitions in the most advantageous way for taxes? Would leasing be a more tax-advantaged decision for some major items? If you do purchase, are you depreciating them in the most tax-advantaged way?
- Retirement Planning – When it comes to small business taxes, retirement planning can be a great tax minimization strategy while creating a comfortable retirement nest egg with tax advantages as well. This can work for owners and employees as well. A qualified retirement plan allows the business to deduct (with limitations) the business contributions to the plan. This gives you tax advantages the year of the contributions and tax advantages later depending on the type of plan.
- Audit Representation – No matter how well your system is set up and functions, rule changes or just IRS curiosity can result in a letter with questions or an audit notice. If you have an appropriately licensed tax professional on your team, they can represent your interests in front of the IRS. Often, the licensed tax professional’s answer to an IRS question can nip the problem in the bud.
As mentioned above, this list is not intended to get you agitated. It is intended to give you some impressive tax savings suggestions that come into play well before the actual time to file small business taxes online.