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2012 tax tips for small businesses
With 2012 mere hours away, small and large businesses are looking for those last write-offs or reorganizing files for a simpler end-of-year next December. And, with audits for small businesses on the increase, here are a few tips to keep you out of the IRS office - or at least make the visit as painless as possible.
According to a Syracuse University study audits of small businesses have increased over the past two years. Why the increase in SMB audits?
"We have a significant budget deficit and the prior administration was an administration publicly opposed to enforcement in many of these situations," said Charley Moore, Rocket Lawyer Founder and Chairman. "We have an administration now that is more comfortable with tax enforcement, so we're seeing the dual effect of a weak economy, a significant deficit and an administration more comfortable with enforcement and which is willing to use tax dollars to supplement."
The IRS can go through seven years of tax returns, and it's based on when the taxes were filed - not just the year. So, filing on time or early starts that 7-year-clock ticking earlier than filing at the last minute or even filing extensions to pay later on.
And don't think the current administration is against small businesses - actually they are pro-SMB, but they want small businesses to be complaint to the rules and regulations of the government. What can a small business to do protect itself from an audit? Or to make the auditing process simpler?
First, says Moore, get professional help with taxes (meaning an actual accountant, not just your spouse/bookkeeper) and with the filing of business licenses or incorporation papers. Also, incorporating on January 1 makes record-keeping simpler, and research the different types of businesses - S-Corps, LLCs, etc. They all have different 'rules' and there are tax savings available for some. So research, research, research.
Second, understand that anyone you place in authority - a vice president, a secretary, etc. - can be held liable for unpaid taxes or fines. For example, if you miss a payroll tax payment, anyone on those incorporation papers besides yourself can be held liable for payment.
Third, choose employee classifications carefully. Hiring a freelance web designer is fine, but understand which employees are exempt from payroll taxes, etc.
Finally, try to itemize everything.
"There is an atmosphere in Washington where the government is trying to collect as much tax revenue as they can; it is so important for SMBs to keep full records. Scan receipts and store them in the cloud, make pictures on your phone so you have them available. There's a joint committee which is making recommendations to cut some charitable deductions so make sure every deduction you take can be backed up. A trick I use is the camera phone to take pictures of my business expenses as I incur them," said Moore.
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