By JOYCE M. ROSENBERG on AP The BiG Story
NEW YORK (AP) — Blood pressures are rising at many small businesses now that tax season is underway.
Although many owners hire accountants and attorneys to complete their income tax returns, taxes are a hassle. In a survey released last year by the advocacy group National Small Business Association, nearly 60 percent of the owners surveyed said the administrative burdens were the biggest problems posed by federal taxes. And 85 percent of the more than 675 owners said they relied on a professional to prepare their returns.
Owners can make the process easier by being organized and watching out for tax pitfalls, accountants say. Here are four tax issues small business owners should be thinking about now and year-round:
Haphazard or incomplete records are one of the biggest problems accountants see at small businesses. Rather than using accounting software year-round, owners stuff receipts and bank statements into file folders and then have to sort them as the tax deadline approaches.
Using accounting software to organize records will ease the process and help guard against costly errors, says Scott Berger, an accountant with the firm Kaufman Rossin in Boca Raton, Florida. He noted that checking accounts can be linked to the software, cutting down on data entry. Financial records can also be linked with tax preparation software, shortening the time it takes to compile a return. It may be too late to get your records into an accounting program for 2015, but owners should get started for 2016 before more time passes, Berger says.
Another reason for keeping good records: Owners need to provide financial numbers for potential lenders or investors.
“It’s in their best interest if they want to take their business to the next level,” Berger says.
TAX TIME, A TEACHABLE MOMENT
Many owners don’t bother to ask for a copy of their tax returns, says Emilio Escandon, an accountant with Morrison, Brown, Argiz & Farra in New York. That’s a bad idea — a tax return is like a report card, providing a snapshot of how a business is doing, he says.
“You should go through that report card and see where you can improve,” Escandon says.
Reviewing the return and discussing it with an accountant can also help an owner plan for the future. For example, if a business suffers a loss, it may not be a one-year event; the loss can also be carried forward, Escandon says.
“You should always have a forward-looking approach,” he says. Owners should also know that their prior-year returns can be amended to take advantage of a loss.
EMPLOYEES AND FREELANCERS
Small businesses that hire freelancers need to be sure these workers are truly independent and shouldn’t be classified as employees. Many companies use freelancers because they don’t want obligations like Social Security and Medicare taxes or providing health insurance. But under the law, freelancers can’t be treated like employees in terms of what they do and how much control a boss has over them. The IRS and state tax officials are paying closer attention to how workers are classified, looking to catch businesses violating the law, says Michael Greenwald, an accountant with Friedman LLP in New York.
Companies must give W-2 forms to employees and 1099s to freelancers detailing their 2015 compensation by Feb. 1. Freelancers, many of whom are small business owners themselves, should be sure they get 1099s from everyone they worked for the previous year. The IRS will match the 1099 copies it gets against the income you’ve reported, and if you failed to include any income, you’ll hear from the agency.
Read the rest of the article here: http://ow.ly/YZgTi