Because of the national financial crisis brought on by the novel coronavirus, Congress authorized the Internal Revenue Service (IRS) to delay the tax filing deadline from April 15 to July 15, 2020. This also applies to businesses that pay quarterly estimated federal income taxes, a guideline most states have followed as well. Millions of business owners have taken advantage of this extension and have yet to file their federal income tax return for 2019. If you’re one of them, we hope the tax help tips below will be helpful to you.

The Right Accountant Makes All the Difference

When it comes to taxes, one of the biggest mistakes small business owners make is they wait until shortly before their return comes due to begin working with an accountant. This is often because of a common misconception that accountants only file annual tax returns for their clients. By working with an accountant throughout the year, you’re in a better position to claim deductions, shelter some of your business income, and take other steps to reduce your liability as much as possible. It also saves you from having to scramble from coming up with receipts required by the IRS to claim your deductions.

Besides tax preparation, the right accountant can assist you with monitoring cash flow, tracking expenses and income, and ensure that your business operates at a profit. This is especially important in these challenging times for small businesses.

Don’t Forget Section 179 if You Have Property Expenses

If you purchased or began using a new property in 2019 on behalf of your business, the IRS allows you to deduct certain expenses for that calendar year only. Described under Section 179 Property of IRS Code, business owners claiming this deduction can deduct $1,000,000 or less of eligible property purchased for their business. Examples include:

  • Any facility you use for research or business purposes
  • Production, transportation, or manufacturing property
  • Computer software purchase off the shelf
  • Buildings purchased to house livestock or store products used in horticulture

While claiming Section 179 can save you a lot of money on taxes, it has several restrictions as well. This makes it even more important to work with an accountant to ensure you claim only what the IRS legally allows.

Make Sure You Classify Your Business Correctly

The IRS sets your tax rate based on the classification of your business. It’s crucial to classify it correctly so you don’t overpay or underpay by a large amount. Your accountant is the best person to advise you on which business classification makes the most sense for your company. The possibilities include:

  • C Corporation
  • Limited Liability Company
  • Limited Liability Corporation
  • S Corporation
  • Single Member Limited Liability Company
  • Sole Proprietor

Don’t Mix Business and Personal Finances and Keep Accurate Records

Gone are the days when small business owners kept hard copies of receipts and other records in a shoebox. With numerous simple accounting software programs available today, even people with no previous training can manage their business finances at a basic level. This is the best way to automatically track all income and expenses throughout the year.

Business recordkeeping can become a real hassle when owners don’t separate personal and company finances. You can avoid this headache from the start by maintaining separate checking and credit card accounts and applying for financing in the name of your business. Although it can be tempting to mix the two, especially if you’re a sole proprietor, you will thank yourself at tax time next year for separating them now.

Know Your True Profit Margin by Differentiating Between Gross and Net Income

New small business owners sometimes overestimate their profits by not accurately tallying the expenses they incurred to earn it. Your net income is what you make before expenses while your gross income is what your business takes in after expenses. For example, your gross income per product would be $50 if you spent $100 to create it and $50 to make it. This includes the cost of materials, delivery to customers, and advertising at a minimum.

Are you ready to see the difference that working with a professional accountant all year long can make for your business? Please contact Capital Business Strategies today to learn about our many services.