The Tax Man Cometh
When tax season rolls around, sometimes the easiest steps are also the easiest to forget. This is no time to get careless. So, as you start gathering your books this year, here's a checklist to run through, to ensure that you're maximizing your company's deductions -- and minimizing your stress level.
1. Schedule an appointment with your tax professional.
Most small businesses use accountants for tax preparation -- don't delay a meeting to prepare for filing. If you do go it alone, purchase tax-preparation software (like TurboTax Premier).
2. Learn what's new for 2005 returns.
Don't miss out on unknown opportunities. For instance, there's a new domestic production activities deduction for certain businesses that can provide big tax savings.
3. Get your records together.
In addition to your books, gather receipts and other needed tax documents. You might want to request an annual statement from your credit card company if you haven't received it -- expenses on the statement are organized by category, which is a big help come tax time.
4. Fund retirement plans.
It's not too late save for your golden years while gaining a valuable tax deduction. Contributions for 2005 can be made up to the extended due date of the 2005 return (e.g., October 15, 2006). If you don't yet have a plan set up, you can use a SEP (simplified employee pension).
5. Review tax elections.
For example, decide whether to expense (deduct now) the cost of equipment purchases made in 2005, or to depreciate the cost over a number of years (typically five or seven). Profitability, qualifying for the domestic production activities deduction, and other factors will influence this decision.
6. Check for carryover items.
Net operating losses, home-office deductions, credit carryovers, and other items from prior years may be used on this return.
7. Don't miss any deadlines.
If you can't file your return on time, request an automatic six-month filing extension. Keep in mind, the filing extension does not extend the time to pay your tax, so pay any outstanding liability to avoid interest and penalties.
8. Plan for tax payments.
Income-tax obligations usually must be paid through estimated taxes. Make sure to have funds on hand to meet this quarterly obligation. Try the government's EFTPS (www.eftps.gov), an electronic-payment system to debit your bank account for taxes. Enroll and then schedule payments at your convenience.
9. Pay attention to other taxes.
Income taxes are not the only concern of small businesses. There may also be local property taxes, sales taxes, and employment taxes to consider. Your failure to attend to any of these obligations can result in unnecessary penalties.
10. Get a jump on next year.
Commit to keeping good books and records if you haven't been doing so. Explore new write-off opportunities for this year, like a new deduction for making commercial space more energy-efficient. Adopt employee benefit plans to attract and retain valued employees -- and gain tax benefits to boot.
For more tax advice, visit Inc.com's Law & Taxation Resource Center.
BARBARA WELTMAN is an attorney and a trusted professional advocate for small businesses and entrepreneurs. She is the author with such titles as J.K. Lasser’s Small Business Taxes and Smooth Failing, and she contributes regularly to American Express OPEN and SBA.gov. Her articles have appeared in the Wall Street Journal and U.S. News and World Report. Weltman is also the publisher of Idea of the Day and monthly e-newsletter Big Ideas for Small Business at www.barbaraweltman.com and hosts radio shows and podcasts, including Build Your Business radio. She has been named one of the 100 Small Business Influencers in the U.S. for the third year in a row.
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