by Norm Bour
New year, new administration, new tax laws: you can plan on it every four years, and usually, a lot more often. By the time you read this, the new year will be under way and it may be too late to make proactive moves, but that does not mean your (last) year is “over.”
Regardless, you, or someone you trust, will be preparing your taxes soon. I hope it’s not you…since that takes you away from your #1 job: running your shop.
Whether you operate on an annual basis or a fiscal year, the items you need to bring are the same. Some of these are common sense, but when it comes to business—and taxes—common sense is not always so common…
NOTE: This is not written or offered as tax advice, but are suggestions. Please see your tax preparer for business or tax counseling.
Let’s talk briefly about your FORM of ownership, since that may need to be evaluated annually. Are you a sole proprietor? A corporation, either a “C,” “S,” or LLC? Or are you part of a partnership? They all offer different benefits and risks, so if your situation has changed, this may need to be revisited.
On a more simplistic level, taxes are all about numbers, and the better you KEEP your numbers, the easier it will be to REPORT your numbers.
As an individual, if you choose to keep your receipts, contracts, and invoices in a shoe box, have at it, but when it comes to your business, numbers don’t lie. But they can exaggerate, and sometimes disappear…
First things first: How much money did you make? What are your gross receivables? An income sheet will put that into focus.
Income is usually fairly easy to keep, but expenses are more difficult since there are so many categories for them, and in many cases, we don’t know what is a tax deduction and what is not. Of course, your credit card statements will also be a part of your income and expenses, too.
You probably have payroll, and hopefully use a payroll service or third party, so be sure you bring all those papers in, since that is probably all deductible.
Did you buy anything this past year? Of course you did. Overall, they are probably easy to figure and expense out, but what about “large” items that can be expensed out and/ or depreciated? Did you buy equipment? A vehicle? New coffee machine or soft drink dispenser for your shop? For the most part, all deductible, and the ways you can claim them as expenses are many. A solid balance sheet will provide that snapshot.
Speaking of vehicles, are you tracking your mileage? You can get credit for many of the miles you or your company vehicle drive, so keep accurate records.
Again, not tax advice, but there was a 2017 Tax Cuts and Jobs Act which allows for 100% first year bonus depreciation on new AND used assets, so if you need the write off for this past (2021) year, you may want to dip into that. If 2021 was a light year and you expect 2022 to be gangbusters, discuss that with your tax person so you can determine when you should take the biggest tax break.
BTW, that depreciation is also available for (quote/ unquote) “commercial real estate qualified improvement property (QIP) that’s placed in service this year.” The fine print says it does not include enlargement or any structural framework of your building.
Some other points to consider. If you use your home as a “home office,” be sure you have those numbers, including what percentage of your home is your “office,” and which is personal use only.
The tax system can be unwieldy, but, like any game in life or business that you play, if you know the RULES, you stand a better chance of winning.