Tax time is coming, even if it’s still more than half a year away. But it’s never too early for businesses to start thinking about their end-of-year filing. Since many businesses don’t have year-round full-time tax help, it’s important to stay abreast of changes that may impact your own business.
These ten items can help you get a start on your 2015 taxes. By thinking about these things today, you’ll be well prepared as the last half of the year progresses.
Study the Changes
Every year, the IRS implements changes that businesses must be aware of as they’re preparing for tax time. Instead of waiting until early 2016, you can study up on these changes now and begin adjusting your budget accordingly. For 2015, the IRS has addressed cost-of-living increases in certain areas, including adjusting the tax brackets.
If your business claims mileage as an expense, it’s important to note that the standard mileage rate has increased for 2015, as well, increasing it from 56 cents per mile in 2014 to 57.5 cents per mile in 2015. Vehicles driven for medical or moving purposes can now claim 23 cents per mile, with vehicles driven for charitable purposes claiming 14 cents per mile.
Keep Good Records
If you aren’t already, you should be keeping meticulous records throughout the year. Either collect receipts in a central location in your office or upload them to the cloud. Track your mileage on a daily basis using an app or a notepad you keep in your car. These little things will keep you from having to waste time backtracking once the year is over.
Make sure your accounting procedures create a way to easily extract data at tax time. If you take your taxes to a third-party accountant, you’ll need them in a format that makes things as easy as possible for that tax preparer. If you do them in house, make sure your systems are set up to easily export information to a format you can use with your tax preparation software.
Purchase a Heavy Vehicle
The Section 179 deduction lets businesses write off the cost of heavy SUVs, pickup trucks and vans used for business at least half of the time. The depreciation of these vehicles begins in the year they’re put into use so you can use it to reduce your yearly tax bill beginning in 2015. In addition to a federal deduction, you can also claim them on some state income tax returns, giving you an additional savings.
Before you start shopping for a new vehicle for your business, be aware of the limits. The IRS defines a heavy SUV, truck, or van as one that weighs 6,000 pounds or more. The vehicle must also be purchased, so leases don’t qualify. The amount you can deduct is limited, but it can be as much as $25,000, which is substantially higher than the limits for regular vehicles.
Claim Employee Costs
If hiring has been a part of your year, don’t forget that you can claim costs associated with the process. Recruiting costs such as job ads and booths at job fairs can be deducted, as can any dues you pay for membership in networking organizations related to finding great employees. These costs can add up over the course of the year, especially if you hire multiple employees, so it’s important to track them for tax purposes.
Once you have employees, there are other expenses you can claim, including the wages you pay them to support your business. This extends to any contractors or freelancers you hire to complete work for you throughout the year. The money you pay is an expense and should be turned into the IRS at the end of the year as such.
Utilize the Home Office Deduction
If you’ve set aside part of your time as an office, you should be taking advantage of the home office deduction. This is especially relevant now that so many entrepreneurs and freelancers work out of their homes well beyond the time when they’re initially building their businesses. Many business owners and freelancers still miss this deduction, unfortunately. Some fear an audit and avoid it altogether, while others simply don’t realize the savings it can bring.
There are now two methods for claiming a home office. One is a standard deduction that simplifies the process. This simplified plan allows a taxpayer to claim $5 per square foot. The regular method requires more calculation, with taxpayers measuring the square footage and claiming a percentage of their monthly mortgage or rent, utilities, and other costs associated with maintaining that space. To qualify, the room must be regularly and exclusively used for business and must be the principal place of doing business.
If you’re running a business, you likely don’t have a retirement in place. In addition to having money set aside for your future, the IRS offers tax breaks to taxpayers who set money aside through 401(k) accounts and IRAs. Eligible employees can put money into a traditional IRA and pay income tax later, when the amount is withdrawn.
Small employers and freelancers may also qualify for an SEP-IRA, which stands for Simplified Employee Pension. A SEP-IRA’s biggest benefit is that it raises the limits on the amount taxpayers can put aside each year. This can offer an additional tax savings each year.
Running a business can be expensive, especially in the early days. By beginning to prepare for tax time as early in the year as possible, professionals can ease the process, saving time they’d spend backtracking at the beginning of next year. By using these tips, many professionals can save time and money when they file their taxes in 2016.