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10 Key Words When It Comes To Paying Taxes

  • By Lauri Paxton
  • 16 Apr, 2013

Some small business owners think there’s only one word (or at least the only one that can be mentioned here) when it comes to filing federal taxes:  Confusion!  The truth is there are 10 words you need to know and understand to be sure you pay no more taxes than you’re legally required to pay.

  1. Expenses. Keep a daily diary or log of your expenses throughout the year. It will be less intimidating to prepare your return and easier to identify all legitimate business costs if you have a log that’s up-to-date and detailed.
  2. Deductions. One of the principal reasons small business owners pay more taxes than necessary is that they don’t take advantage of all of the deductions they’re legally allowed. That often happens because they can’t prove they are qualified. The most common deductions for small business owners include entertainment, travel, meals, home office and health insurance. Travel miles, meals and entertainment deductions require that you maintain a diary with daily entries that tie into receipts and other records.
  3. Traps. A small business owner may do some things that are more likely to get IRS attention than others. For example, claiming deductions that exceed your income for more than one year is a definite red flag. The home office deduction, which is allowable only under specific circumstances, may be another red flag. That’s not to say you shouldn’t claim every deduction you’re entitled to claim, only that you should be especially careful when you do so.
  4. Retirement. You must have earned income each tax year to qualify for a tax-deductible retirement plan. If you do, the funds paid into the retirement plan are deductible and they may also grow tax-free until retirement.
  5. Equipment. For tax years beginning in 2012, a small business may deduct up to $500,000 in equipment purchases as long as the business spends $2 million or less for equipment for the year. The cost of repairs may also be deductible even if the repair does not extend the useful life of the equipment.
  6. Payroll. One of the most common and costly tax-related problems for small business owners is that they use the payroll taxes withheld from employees to finance business operations. Not only does the IRS often go after a small business owner’s personal assets to collect the unpaid payroll taxes, but it also may attempt to assess significant penalties.
  7. Insurance: If you have health insurance coverage for your employees, check to see if you are eligible for the small business health care tax credit. The IRS website has a page describing the credit, eligibility requirements and how to claim it.
  8. Veterans: An expanded tax credit is available to business owners who hire certain unemployed veterans. Don’t overlook the credit if you hired a qualified veteran. The IRS website has details.
  9. Contributions: Many small business owners donate goods or out-of-pocket expenses to charitable organizations throughout the year. Be sure to get a valuation for any non-cash items your business donates to charity so you’ll have the records you need to support the deduction for your contributions.
  10. Help. If you are unsure about anything related to your tax obligations under the law, you should seek professional help from a tax professional. A quarterly meeting with your tax preparer to go over your specific situation will allow him or her to best advise you on what to do to keep your tax bill, and the stress over it, as low as possible.
The key point is to plan for 2013.  By keeping accurate records throughout the year helps to prevent costly surprises at tax time.
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