Do you own or operate a large horticulture business? Do you employ scores of seasonal and year-round personnel? Do your profits run well into the seven-figure range?
If you answered yes to any of the above, you’ve already got a bookkeeper, an accountant, a financial advisor — and a team of tax attorneys — at your disposal. Move along, folks; nothing to see here.
If you answered no, however, chances are you’re in the first lean years of owning your own business, or you’ve opted to remain small. Good for you; you’re agile. But you may be confused by taxes. Who isn’t?
The first thing to understand about taxes is that few business owners understand taxes. The second thing to understand is that there are professionals who can guide you through the labyrinth of rules and codes. Before you hire a pro, however, consider these tips.
lt all begins here
Taxes — what you’ll pay, how you’ll pay — start with the type of business you own, other wise called your business structure. The IRS recognizes five basic types:
- Sole proprietorship
- S Corporation
- Limited Liability Company (LLC)
Sole proprietorship is the simplest structure, allowing you to report income and losses on Schedule C attached to your individual income tax return, Form 1040.
Partnership is similar to sole proprietorship, but the company is owned and/or operated by two or more partners. Under both structures, owners have personal accountability for business debts.
Corporations involve shareholders, and it’s not likely that your company is ready for that.
Perhaps in the future, if you’re planning on considerable growth, but for now? Be glad you’re small.
Limited liability companies are allowed under individual state statutes, but the IRS may view an LLC as a corporation, a partnership or — if owned by an individual — a sole proprietorship. One advantage of owning an LLC is that it offers personal protection from business debts.
Top deductions for small businesses
Being aware of the ways you can save can help you plan throughout your fiscal year, and many of the most popular deductions often are overlooked. Remember, however, that exceptions are the rule, and record keeping is critical.
- Rent on business property: Normally the cost of renting space for your business — offices, storage, etc. — is fully deductible.
- Mortgage interest: Do you own the real estate? The interest on your mortgage is fully deductible.
- Car and truck expenses: Operating costs are deductible, but be sure to keep meticulous records proving the vehicles are used for business purposes only.
- Repairs: The cost of regular maintenance and ordinary repairs to equipment and real estate is fully deductible; improvements that increase their value, however, must be capitalized.
- Rent on machinery and equipment: If you lease equipment used occasionally or seasonally, those expenses are fully deductible.
- Out of town travel: Trade shows, sales calls, seminars and symposia are standard business requirements, and travel expenses can be deducted. This includes airfare and lodging. “Travel” does not include your daily commute.
- Home office: If you use part of your home for business purposes — say, a den or spare bedroom, a basement or attic — you may be allowed to deduct some of the expenses. This can be a complicated situation, however, so keep records and make sure the space is used for business only.
- Utilities: Good news! You can deduct the cost of electricity used for business facilities.
- Supplies: The various supplies that are necessary for conducting your particular business are deductible, but keep those receipts, and be sure to verify with your accountant which supplies are eligible.
- Salaries and wages: You cannot deduct your own income, but if you have employees, the wages you pay them are deductible.
- Insurance: Many types of coverage are considered fully deductible, but rules about health insurance vary, so check with your accountant.
- Legal and professional fees: Did you consult a lawyer or an accountant? (You should have!) Fees for those professional services are deductible.
- Advertising: When you’re starting out, your budget is tight, but you should not forgo advertising. Ordinary costs to advertise are deductible.
This may all change
With every new White House administration there comes a pledge to change taxes. Whether the vernacular used is tax reform, tax cuts or tax relief, we can be assured that some attempt will be made to alter how we pay or how much we pay.
The tax reform plan proposed by the current administration — at least at this writing — presents four “simple” goals:
- Tax relief for middle class Americans
- Simplify the tax code
- Grow the American economy
- “Doesn’t add to our debt and deficit”
Should you go it alone?
The temptation when your business is young and/or small is to save as many dollars in as many places as you can. So if your brother-in-law is CPA, then yes, you can probably get by going DIY with your IRS obligations. Accounting software is available from a variety of sources, and if you’re savvy enough to have started your own business, you’re savvy enough to handle the initial bookkeeping, tax prep and financials yourself. At least for a while.
Check out the following:
You can also check with your local library, chamber of commerce or the Small Business Administration for advice.
There are, however, a couple of compelling reasons to go with a pro: time and money. You may think that you’re saving money by doing all of the work yourself, but when you consider that you’re probably also spending time studying and verifying, calculating and recalculating, searching for the most appropriate and legitimate deductions — phew! — you may realize that you need to get back to work. If you’re spending too much time away from productivity, trying to handle the dollars that support your business, you may end up sacrificing those dollars.
The moral of this story? When in doubt — and you will be in doubt — seek professional advice.