Tips to Make Tax Time Easy & Maximize Your Deductions
Tax time is difficult enough to get through without the burden of providing additional information to your bookkeeper. When it comes to running a design business, most of your day to day activities are recorded with bills for products and invoices that you either receive or send out to clients. The other activities such as meals, office supplies, business gifts and fees that you need to run your business often require an intentional effort to track those expenses. These expenses and other tips can help save you money when it comes to tax time. Let’s take a look at a few of my favorite tips that can make your tax time less stressful and save you money!
Keeping track of your receipts is always a chore for any business. Over the course of the year, we collect a lot of documents and receipts can get out of control quickly if they are not processed in a timely manner. The purpose of good receipt management is two-fold:
1-Ensure that you capture all the expenses you have incurred through the year
2-Have documentation for the IRS in case of an audit
One of the best ways to store the documents is to scan the receipts for digital storage. Depending on the type of expense the IRS requires receipts to be kept for anywhere between four to seven years.
Additionally, I like to add notes on my receipts so that I can reference back the purpose. Examples would be the name of the client, the business discussed, and the category the receipt should relate to. Examples of categories would be meals, office supplies, fabric purchased, and travel.
Early Bill Pay
Bills that are not paid sounds obvious, but not so much in the Interior Design industry. Expenses that you may have for unfinished projects might be waiting for you to pay them at the end of the year. If you have the cash, it will benefit you to pay the bills to take the tax deduction. Often we are hesitant to pay the bill because we are waiting for the project to finish or waiting for payment from the client. If you are sitting on these unpaid bills, this money will help you save money at tax time by reducing your net income and thus your tax bill.
The holidays are a great time to give a bonus to your staff. Review the payroll and see if you can add in some holiday bonus or project related bonus. Make sure that the bonus gets to the employee before the end of the year. The payroll feature in QuickBooks Online (QBO) makes it easy to run a bonus payroll, and you can select net check or gross check, and it calculates all the taxes for you. Adding in extra payroll will reduce your net income for the company and thus, reduce your taxes.
Credit Card Expenses
If you use a company credit card, connect it to QBO to download all the transactions. Charging expenses on a credit card before the end of the year will make them deductible for that tax year. The beauty of connecting QBO to your bank is that it retrieves all the transactions to be categorized and enables a more transparent view of the expenses in real time.
Business activities, for the most part, are deductible to the company. However, certain cases arise that are misleading and are non-deductible items. Let us take a look at a couple of examples:
Check with your tax preparer to find out the basis on which you report your taxes: the cash basis or the accrual basis for tax return requirements. If your company is on a cash basis, then you will not be allowed to deduct bad debt. On the cash basis, you report income when money is received and expenses when the money is spent. When a client fails to pay an invoice, then there is no collection of funds; thus, the revenue is not reported and is not claimed as bad debt.
The rules on sales tax are getting more and more complicated each day. Products are taxable, and now some services are also taxable. When you pay the state for the sales tax you have collected, this is not deductible. The process is as such: sales tax is charged to the customer, received on behalf of the state agency and then the amount you collected is remitted to the state agency. The collection and remittance of tax are known as a pass through. Reach out to your local accounting professional if you need help on determining the taxability of your company products and services.
At the end of the year is a difficult time to take on new projects. However, if you need tax deductions then think of things that the company may need to reduce the tax bill. Some of those deductions could fall onto this list:
Website creation or revamping
Content articles or Social Media Content
Sample purchases for products
Motor vehicle repairs
New office equipment
The above is just a sample of some items that can be purchased at the end of the year to help reduce the tax bill. As always consult your tax advisor on the best way to achieve these tax deductions. Remember documentation, working with your software to help streamline the capture of the expenses, and finally looking around at the needs of the company will save you time and money come tax time.
To learn more about getting started with a QuickBooks Online account, connect with your Ivy Account Manager, Matthew Jacocks, here.
About the Author:
Jan Haugo owns JH & Associates based out of Scottsdale, AZ Jan has 20 years of experience working in accounting for companies such as Michael Ferguson Interiors, Valerianne of Scottsdale and Revitaliste. The goal of her firm is to offer guidance, long-term vision, and goal oriented accounting using real-time information in a collaborative environment.