Before the holiday rush, before the holiday parties start, and before employees (and you) take time off to be with family, make sure all your tax prep will be done by the end of the year. The beginning of a new year is the worst time to try and track down expenses. Plus, on January 1, it will be too late to take some 2016 tax deductions you should have implemented earlier.
Follow these tips to make tax filing go smoothly:
Make a List
Ask your accountant or tax preparer for a checklist of the numbers and documentation you’ll need to provide. The checklist may include:
- Gross receipts from sales or services
- Sales records (for accrual-based taxpayers)
- Returns and allowances
- Business checking/savings account interest
- Materials and supplies
- Phones (landline, fax or cellphones related to business)
- Computer and internet expenses
- Transportation and travel expenses
- Local transportation
- Commissions paid to subcontractors
- Business insurance
- Business loan interest
- Professional fees
- Fees to lawyers, accountants and consultants
- Office supplies
- Office space rent
- Business-use vehicle lease expense
If you conducted business in your home in 2016, you may be entitled to a home office deduction. You’ll need the square footage of your office space and the total square footage of your home, as well as the cost of home utilities, mortgage or rent and any home office improvement expenses.
Employee and Independent Contractor Tax Filing
January 31 of each year is your deadline to mail employees their W-2 forms and to send independent contractors their 1099s. W-2 forms are also filed with the Social Security Administration (SSA), and they show all the wages and taxes your company paid during the tax year. You total your W-2s, and file the totals using a W-3 form.
New W-2 forms must be ordered each year, so order them now from your payroll service if you haven’t yet. Make sure you have verified all employees’ names and Social Security numbers before you prepare the W-2s. You can verify up to 10 names and numbers on the Social Security Business Services Online website.
New for tax year 2016: January 31 is the filing deadline for both electronic and paper W-2 forms. If January 31 is on a Saturday, Sunday or legal holiday, the deadline is the next business day.
Deductions vs. Credits
Tax deductions lower your taxable income, while tax credits directly reduce the tax you owe. Luckily, you can use both, and both help reduce the amount of taxes your business pays. Tax credits are available for everything from hiring Native Americans to providing daycare for employees’ children. For a list of business tax credits your business may be eligible for, check the IRS website.
As for tax deductions, you may have more than you realize. Here are some commonly overlooked deductions; start gathering information on them now.
- Charitable contributions. You still have time to take advantage of the charitable contribution deduction, and the holidays are the perfect time to make a donation to the charity of your choice. If you have assets that still have value, such as a business vehicle or computer, you can donate them to charity and take the value as a tax deduction. Next year, consider setting up a monthly donation through your company credit card.
- Business gifts. As you’re planning what gifts to buy for clients and vendors, don’t forget you can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. Even if you give a gift to the general company, if it is intended for the personal use or benefit of a specific person, it’s considered an indirect gift to that specific person. (Incidental costs, such as engraving on jewelry, or packaging, insuring and mailing a gift, are generally not included in determining the cost of a gift for purposes of the $25 limit.) Be aware: Gifts to employees could be considered income by the IRS and may get employees in trouble if they are not claimed on their tax returns. Check IRS Publication 15-B for exclusions to this rule.
- Tax prep fees: Get your tax preparer started before year-end, and you can take the tax preparation fees as a deduction for calendar year 2016. The same goes for any fees paid to a financial planner for your business.
- Employee education: Your business can provide education assistance without making your employee count the reimbursement as taxable income while still allowing your business to claim a business deduction for educational employee benefits paid. Educational expenses generally include the cost of books, equipment, fees, supplies and tuition.