Tax Alert for Small Business Start-Ups! – Any new business owner will soon realize that business taxes are one of the largest business expenses. This being the case, saving money on tax dollars is one of the most effective ways of increasing profitability. However, since the IRS tax code governing the start-up and continuing operation of a small business is so fluid and complex, keeping up with all of the available small business tax breaks can be a daunting task in itself. Outlined below are some of the ways that small businesses start-ups can save tax dollars in 2014.
- Start-up Costs
Any business that opens in 2014 can deduct five thousand dollars in start-up costs on their 2014 business tax return. Start-up costs that exceed this five $5000 limit, including such items as advertising, travel expenses, training and other costs that are incurred before the business officially opens, can be amortized over the next 15 years. As with all business expenses, start-up costs must be carefully documented.
- Organizational Costs
Five thousand dollars in organizational costs can be deducted for any business that officially opens in 2014. Organizational costs include legal fees, incorporation fees, costs associated with the transfer of assets, fees paid to temporary directors and the costs associated with organizational meetings, among other things. As with start-up costs, all organizational costs should be carefully documented.
Any new business should head out of the starting gate with an organized system for recording travel and entertainment expenses. In order to fulfill IRS requirements, the documentation for travel and entertainment expenses should include the actual cost as well the reason for the expense. In addition, written receipts are required for any expenditure over $75.
A new business is probably wise to document business mileage as well as the actual expenses of driving and maintaining vehicles that are used for business purposes. This will allow them to choose the method that will provide the greatest business tax advantage when tax time rolls around. The IRS currently allows a deduction for the sum total of expenses involved in maintaining business vehicles or 56 cents per business mile driven, whichever results in the greatest tax deduction.
- Classification of Employees
Start-up businesses must be careful not to misclassify employees as independent contractors when they are actually company employees. The IRS has published some very strict guidelines governing the classification of employees and issues some harsh penalties when these guidelines are not adhered to. If the IRS determines that an employee has been misclassified as an independent contractor, the new business owner is held personally liable for the back payroll taxes that should have been deducted.
- Supplies and Capital Expenditures
To be tax wise, a new business should keep careful records of all capital expenditures including the purchase of office furniture, computers, company vehicles and other business equipment. These expenses should be kept separate from the purchase of supplies, which are items required to run the business on a day to day basis. While there is a dollar for dollar deduction for business supplies, capital expenditures have to be amortized over a period of time after the first $25,000 (reduced from a limit of $500,000 in 2013).
- Home Office Deduction
Any new business that uses part of a home totally and exclusively for business, should have a system in place to record those expenses required to take the home office deduction The IRS now allows two methods for taking this deduction, the regular method and the new simplified version. The regular method involves keeping up with the actual expenses of operating the home office, while the simpler method is accomplished by simply multiplying a preset IRS rate by the square footage in the home that is used for business. Although the home office deduction can sometimes be a red flag for an IRS audit, it should not be overlooked as long as the use of the home is carefully documented according to IRS guidelines.
If you are a small business start-up, the experienced CPAs, Enrolled Agents and Tax Attorneys at Business Tax Preparation can provide all of the business tax and business accounting services necessary to get your business off to a good start. Our experienced professionals have helped many successful small businesses get off the ground and on the road to profitability. To learn more about our full range of business tax and business accounting services, visit us today at www.businesstaxpreparation.com. Contact us by phone at (866) 676-9417 or by email at firstname.lastname@example.org to receive a free, no obligation consultation.