One of the oldest sayings in the world of finance is that past performance is only an indicator of future performance and growth – it is not a guarantee of future results. This old saying, however, does not apply to taxes. When it comes to taxes, past performance is the only true indicator of what kind of deductions are we looking at and how it can be applied.
ADP business tax credits and incentives can help you deal with the problem of identifying eligible tax credits, incentives, the screening process, and maintaining compliance. Here is a list of tax deductions for small and medium scale businesses and how you can stay on top of them:
Depreciation
When you are buying property, machineries, and other assets for your business, you are allowed to deduct depreciation on the same based on the category the asset falls into. Depreciation is discussed under section 179 where it says that for example, if you are buying equipment for your factory or operation worth up to $500,000, you can calculate depreciation on it. Not only this, there is also provision for a 50 percent bonus depreciation.
Supplies
There are a lot of supplies used in the office for its day to day administration and working, like cleaning supplies. These supplies are hundred percent deductible. So you need to be smart here and take advantage of it. It may not seem like a big amount initially, but over a period of time like a year, it can really add up.
There a lot of other deductions that you can claim when you are running a small or medium-sized business. The problem is the organization of bills and receipts for all these expenses and how to manage it throughout the year so there is no cause for mayhem at the end of year.
Here are some tips on how to stay on top of receipts and stay organized for the end of the year closure:
Maintain all receipts
This is the basic concept. If you are not keeping all your receipts, then how are you going to take advantage of deductions? You lose a receipt and it’s lost forever. An IRS agent is going to ask for every single receipt to support your claim, well, perhaps a couple of them and if one is missing then they will ask for more and perhaps you do not get credit for that tax deduction for the receipt you have lost.
Note the purpose on the receipt
The moment you receive a receipt, make a small note on it so you do not have to remember the purpose. Sometimes when you look at a receipt, you are unable to remember the purpose of the payment. This makes the receipt useless. Make a habit and note down the purpose of payment quickly on the receipt itself and then store it away in a proper file.
Scan receipts and store it for at least five years
The IRS, it is controversial right now but that is another topic, has the power to knock on your door for up to five years and ask you to sit down for an audit. This is just a precaution in case it happens with you. A simple way to do this would be to scan the receipt and keep a soft copy of it in separate folders based on the year it applies too.
Business journal
You may have heard about personal diaries, but keeping a daily business journal is equally important. You may think it as cumbersome, reporting and recording everything on a daily basis, but technology has made it very easy to do with online tools and software like outlook or Google calendar.
Credit card statement not enough
Many people believe that credit card statements are enough to prove their expenses, but the sad reality here is that they fall short and IRS can come down heavily on you for your negligence. Your credit card statement contains little information. When you go shopping at Walmart, it will show Walmart but how do you know what you actually bought in Walmart. There is very little information on the credit card statements.
Cash is not good
Stay away from cash as much as possible. When you make payments in cash, it is virtually untraceable. It is not considered a terrific bookkeeping practice. The problem with cash is that it is too easy to spend and at the same time, very difficult to keep track of.
When the end of the year approaches, you will find it very difficult to reconcile cash receipts for documentation and audit purposes. Use credit cards and debit cards as much as possible. They are far easier to track and reconcile when compared to cash receipts.
Employ your family
This is a bonus tip. You are legally allowed to employ your family members in your business. This allows you to deduct their salaries as expenses and reduce your tax burden without having to actually pay anything. One thing to keep in mind here is that you need to account for their work and keep a record of their wages or salaries which can be either fixed or hourly. You can also deduct insurance premiums for them. Another bonus for you is that children under the age of seventeen are not liable for social security tax.
So keep in mind the different types of deductions you can benefit from, and remember to stay organized throughout the year. This will go a long way in ensuring your success.
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Written by Jon the Saver
