Twas the night before Christmas and all through the house, Not a creature was stirring, not even a mouse. But the boss was still up, counting his money. Papers stacked high; year end tax planning is coming. It’s not sleigh-bells you hear, but the ring of an audit. You must count your inventory! You must get on it!
Ahh, Christmas. It can be such a wonderful time of year. It can also be a bit stressful for small business owners who wear more hats than Santa. We know you want to get your year end tax planning done as quick a flash, so we’ve got a few simple tips to help you along.
Year End Tax Planning: Count Your Inventory
If your business has inventory, you probably already know that you need to count it, but when is the best time to do so? Try to take inventory as close to the date of 12/31 as possible. You want the most accurate numbers possible since your deduction is dependent on the cost of goods sold vs. retained in store.
1099 Filing Requirements:
For those of you that pay others for providing services for your business, you will need to prepare 1099s. 1099s are given to any individual or business that received a minimum of $600 from you for services or rents in the year. For example, you hired three high school students to be in a funny commercial and paid them $650 each. They would each need a 1099. Or you contracted with a blogger to write your blogging articles for you. You paid her $45 per blog and she wrote 20 blogs. You would need to send her a 1099 for $900. However, businesses set up as C or S Corporations do not need to be issued a 1099.
The W-9 form (given to all persons whom you will hire) will indicate how they are taxed. One of our tax professionals can help you determine who needs to be issued a 1099. If you don’t have a W-9 on file, you can go to this link to print one: https://www.irs.gov/pub/irs-pdf/fw9.pdf .
1099’s must be issued by January 31, so we recommend gathering your documentation together now.
Auto Mileage Reimbursement:
Another year end tax planning to-do is the calculation of person and work mileage. If you’re driving a personal vehicle, be sure to reimburse yourself for business miles. For 2015, the rate of reimbursement for business miles driven on your personal vehicle is 57.5 cents per mile. You tax professional can advise you on the current rate as well as restrictions of use.
If your business owns a vehicle and you use that vehicle for personal driving, you must add the value of the personal miles to your W-2 as a fringe benefit prior to year-end at the same rates as above. Your tax prep team will need to know the mileage both personal and professional, so keep an accurate count. There are several fantastic mileage apps out there to make this easy.
Home Office Reimbursement:
Home office expenses can be tricky, yet also extremely beneficial. We must warn you that they are a trigger for audits, but don’t let that scare you away. You just need to maintain clear records and clear boundaries; the office must be strictly for work. You can’t store anything in the office that is for personal use – sorry Santa.
Also, if you have an S-Corp or C-Corp, be sure to reimburse yourself for any business expenses if you paid for them out of your personal account.
Health insurance for S-Corp owners:
For those of you with an S-Corp, you must record the health insurance paid on your behalf in boxes 1 and 14 of your W2. There is a strong chance that your health insurance will not be deductible if you skip this step. Your S-Corp must pay for the health insurance so if you paid personally throughout the year, be sure the S-Corp reimburses your personal account prior to the end of the year.
If this is all starting to make your head spin and blood pressure rise, you’re not alone. Most business owners started their business because of a passion. Passion for a product or passion for a service. Then you get weighed down with the paperwork of taxes, payroll, filing, etc., etc. It can really suck the fun out of you. That is unless you started your business because you love helping people with their taxes, payroll, and HR. At PayTech, that’s exactly why we started our business! We love taking the minutia off the plates of small business owners. We want to keep the records, cut the checks, records the taxes, and more so that you can focus on your business and not the paperwork. Our passion is helping your reach yours! Check us out to see if our team is a good fit for you!