Dear US-Based Small Business Owner: It is Time to Get Your Books Ready for Year End

Profits, depreciation, travel costs, healthcare, startup costs, training expenses, charitable donations – all these and more represent little numbers on a page that can save you money if you have your books in order when the “Revenue Man” comes a calling in the next couple of months. Rules and paperwork vary significantly from one country to the next, however most do employ many of the same basics.

For those of you with businesses based in the good ‘ol “US-of-A”…

It’s crunch time!

working with business tax documents

If you don’t have your tax paperwork in order, then you’ll be in for a real slap in the face when business resumes full-swing in the New Year, and your accountant starts hassling you for the receipts from that big move you made to a new location this year, so they can deduct it from your individual 1040 return.

Did you even know that you can deduct business-related moving expenses from your personal return when you move your business 50 miles or more from your personal home? You can.

This is just one of many examples of great reasons why you need to have your affairs in order early, so you have wiggle room for you or your accountant to make adjustments before April hits you straight in the gizzard! Business doesn’t stop while you’re turning your filing cabinet upside down looking for receipts, or begging vendors to re-issue that invoice for new office furniture from February that you inexplicably lost.

So, preparedness is key, the rest of this article will assume that you’ve kept meticulous records and all that’s left is to apply them in order to maximize your return.

If not, nobody can help you!

Just kidding. But seriously, don’t wait. Whether small or large, all tax time errors are critical, and can severely limit your true profits from 2012. After all, they aren’t profits until the tax man gets his cut, right?

Check out 5 common tax deductions to watch out for while preparing your return this year.

5 Common Deductions to Consider for Your Small Businesses This Tax Season

1. Startups and Related Costs

Were you a fresh startup this year? You can claim up to $5,000 dollars for each of startup and organizational costs associated with starting your small business (source). Research and experimental costs are an amortization expense that can be deducted in Chapter 8 of your return. You and your accountant can discuss this in more detail to figure out what stipulations apply best to your situation.

2. Equipment/Technology Purchases

This is a big whopper of a cost for most small or large businesses. Technology doesn’t stop for anyone and it’s nearly impossible to run a business without the latests and greatest advancements; not to mention all the normal necessities like vehicles, furniture, paper, software, and manufacturing equipment. You can deduct up to $500,000 of this expense, and there’s an additional provision this year called “Bonus Depreciation” that allows for an additional fifty-percent deduction of overall costs, if you meet the IRS’s requirements. Check out this great article for a full breakdown of section 179. Here’s the IRS link too: www.irs.gov/publications/p946/ch02.html

3. Home Office Costs

This is a deduction that must make (some) IRS agents really laugh their heads off at times. Though I’m told that most of them nary crack a smile! A home office has to be an exclusive area of your home dedicated to your business. The IRS expects you to show proof that you use said area as a primary place of business – that you use it solely as a location for conducting your business. Here’s the information on IRS Home Office Deduction.

4. Training, Membership & Professional Costs

Training costs that relate specifically to your business are deductible. This includes seminars, classes, certifications, manuals and other training expenses for both you and your employees. You can also deduct membership fees for professional organizations you must pay to belong to such as trades, health, education, accounting, science and Bar associations – among many others. Business costs for using accountants, consultancies, legal, and any other professional service that your business uses can be deducted, provided their services are related the tax year you’re completing a return for – see Publication 970.

5. Donations to Charity

Who among us doesn’t know about this particular deduction? Everyone’s always fretting about charitable donations, furiously gathering all the $5 donation cards they’ve received from organizations like the Kid’s Help Phone over the last year (You know, from that cute little kid standing in front of a retail business, bank or liquor outlet asking for donations?) Money, properties, special event costs, and professional services can all be deducted at their full fair market value. Truth is, as a small business owner, the amount you can afford to put into charitable donations isn’t likely to help your bottom line very much when it comes to your tax return, unless you’re putting a lot of time and resources into many separate charitable avenues. However, this isn’t the reason we help charities anyhow. Right? Please review Publication 526 for this.

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