Tax and financial planning now can help avoid surprises at filing time
Ken Watts | 12/27/2013, 6 a.m.
Small-business owners can get the new year off to a good start by focusing on tax and financial planning.
Barbara Weltman, an attorney, author and guest blogger for the U.S. Small Business Administration, offers five actions to take for 2014:
n Revisit your recordkeeping practices.
Records are vital for both business and tax purposes. They let you know whether or not you’re profitable and provide key information to help you take business actions, such as adjusting prices, cutting expenses, or raising money. In order to take all the deductions and credits to which your business is entitled in 2014, you’ll need good books and records. Often business owners fail to pay attention to this detail until it’s too late and the IRS is questioning write-offs claimed on a return.
Set up a recordkeeping system that satisfies tax law requirements, and make sure that employees know what to do. Check IRS Publication 583 for details on recordkeeping rules for tax purposes. Consider using apps that can help with recordkeeping, such as those for capturing receipts for travel and entertainment expenses. Some may be available for use with, or provided by, your current bookkeeping software or cloud solution.
n Note your odometer on Jan. 1. If you use your personal vehicle for business, you can deduct the cost of business driving only if you have the records to back this up. This means noting your odometer at the start of the year and then tracking your business trips regularly.
Again, consider using an app for tracking mileage. Some are free, and others entail a modest fee.
n Review your business plan. Your business plan should include projections for sales and expenses in the coming year. If you haven’t yet updated these for 2014, do so now. The projections aren’t carved in stone, but they serve as a very useful benchmark against which to measure your results.
It’s a good idea to check projections monthly so you can make adjustments as needed in a timely manner. For example, if you’ve been expecting gas prices to remain low but they suddenly spike, you may need to reduce another expense, such as advertising, to keep your budget in check.
SBA tools can help you create a business plan.
n Fix your withholding/estimated taxes.
If you work for your corporation, make sure that withholding for 2014 will cover your projected tax obligations. Be sure to take into account the 0.9 percent additional Medicare tax on taxable compensation over a threshold amount that depends on your filing status (e.g., $200,000 for singles, $250,000 for joint filers) as well as the 3.8 percent additional Medicare tax on net investment income.
If you’re self-employed, your estimated taxes will have to cover roughly what you expect to owe for the year. These taxes should include not only the additional Medicare taxes if you’re a high-income taxpayer, but also self-employment taxes (to cover your Social Security and basic Medicare tax obligations).
The IRS offers guidance on withholding and estimated taxes in Publication 505. The 2014 version should be available early in 2014.
n Plan to work closely with your tax and financial advisers.
Make it a New Year’s resolution to stay in touch regularly with these professionals. While there are fees for the services, likely they will save you money and trouble in the long run.
Weltman, who is the author of “J.K. Lasser’s Small Business Taxes” and “The Complete Idiot’s Guide to Starting a Home-Based Business,” says the economy and taxes are continually changing and that small businesses should make it their top resolution to stay informed about new developments that can affect your business and impact your actions throughout the year.