With 2014 more than half over, it’s time to start thinking about taxes—if you want to save money.
April 15, 2015, may feel light-years away. But with the third quarter of 2014 soon coming to a close, taking stock of your small business’ financial situation now could save you money on taxes, says Jack Klosterman, a tax specialist and IRS enrolled agent in Laguna Niguel, California. These six steps can get new small business owners ahead.
Keep good records.
As a small business owner, you should already be keeping close tabs on your income, deposits and expenses, but if not, start today. “A lot of small business owners guesstimate or keep records in their heads,” Klosterman says. You should have a separate checking account for your business (rather than using your personal account), and your records can be as simple as an Excel spreadsheet or software such as QuickBooks. “You’re saving money because you’re accounting for all of your legitimate deductions,” Klosterman says. On the other hand, if you have to go back and fill in shoddy records, you’ll likely end up paying more in taxes than you truly owe.
Once you have a solid record of your profits and losses for the first six months of the year, compare these numbers to last year’s to determine whether your business is performing better, worse or about the same. Check out IRS.gov to estimate how much you’ll pay in taxes. Once you know approximately how much you’ll owe, you can send in estimated payments, which can keep you from having to pay penalties later on.
Take stock of personal expenses.
If you run a sole proprietorship, partnership, LLC or S corporation, your actions outside of work—such as buying or selling a home—could affect your taxes. For example, you could save money if you bought a home since you can claim deductions for your mortgage interest and property tax.
Don’t forget the little things.
Seemingly small expenses you incur for the job, such as the occasional tank of gas, add up to a tax deduction to the tune of 50 cents per mile. If you travel for work, Klosterman suggests keeping a notebook in your car to record the date, odometer readings and total miles driven on each trip. There are also a multitude of affordable mileage tracker apps. “You have to be able to substantiate it,” he says. “The tax preparer is required to see it to get you the deduction.”
Make estimated payments.
Nearly all business owners, unless they make less than a few hundred dollars a year, should be making quarterly estimated payments. The previous year’s tax bill is a good rule of thumb, Klosterman says: “If you estimate 100 percent of the previous year’s tax bill or 90 percent of the tax to be shown on your 2014 tax return, you won’t get hit with penalties or interest if you owe a little bit when you file your return.”
Hire a pro.
If there are big changes in your business or if keeping the books yourself is too time-consuming, consider hiring a bookkeeper or accountant, or working with a CPA or enrolled agent. These professionals can be hired on an hourly basis to provide as little or as much help as you need and are experts at spotting areas for tax deductions.