The time for filing your income tax return will be here before you know it. Whether you use a paid preparer or do it yourself, start now to get ready so that you optimize your tax results.
1. Complete your accounting for the year. Make sure your books reflect your income and expenses for the entire year. If your business is a retail establishment or other business with inventory, take a physical inventory now.
2. Gather your receipts. This doesn’t mean dumping them in a shoebox for your preparer to organize; organize the receipts yourself to save money and ensure you get every write-off you’re entitled to. Consider scanning receipts into deduction categories (e.g., travel and entertainment costs). There are apps for this purpose.
3. Issue Forms W-2 and 1099. Part of your annual tax responsibilities is to issue certain information returns (and later give copies to the IRS). You have until January 31, 2015, to provide employees with W-2s and independent contractors with 1099s. Employees must receive the forms, regardless of earnings; you only have to issue forms to contractors who received payments from you totaling $600 or more for the year (but you can opt to issue them even if payments were lower).
4. Determine who’ll prepare your return. You (using software) or a paid professional? While most businesses use a tax pro, some owners like to do it themselves as a review of their activities for the year. Factors to consider in making the choice: the complexity of your tax situation, the time you have to devote to this chore, and your facility for it (some owners loathe the topic of taxes).
5. Find out what’s new on 2014 returns. Favorable tax breaks that expired at the end of 2013, including bonus depreciation for certain equipment purchases, have been extended for 2014 and can help you reduce your tax bill for the year. Also changes under the Affordable Care Act, such as an increased tax credit for small businesses that pay at least half the cost of their employee’s coverage, debut on the 2014 return. Which extended or new breaks apply to you?
6. Fund your retirement plans. If you had a qualified retirement plan in place on December 31, 2014, you have until the extended due date for filing your return to make your deductible contributions. If you were profitable in 2014 but never signed the requisite paperwork for a plan, you can still set up and fund a SEP (simplified employee pension) plan for 2014 until the extended due date. This plan can be used for corporations and unincorporated businesses.
7. Prepare to benefit from losses. If 2014 wasn’t a good year economically, it may produce a tax break to help you with cash flow. Having expenses that exceed your income for the year may result in a net operating loss (NOL) that can be carried back to offset income (usually in the two prior years) and receive tax refunds; excess losses can be carried forward to offset losses in up to 20 years. Instead of waiting to file amended returns to utilize NOLs, you can file for a quick refund. On or after January 1, 2015, corporations (other than S corporations) can file Form 1139 for quick refunds; business owners reporting their share of business losses can file Form 1045.
8. Get a filing extension if necessary. This is done by simply asking for it before the due date of your return and there’s no proof that this increases your chances of being audited. What’s more, you may have to do it if you don’t have all the information needed to complete your return. For example, if you own an S corporation, limited liability company, or other pass-through entity, the business may not complete its return so it can give you a Schedule K-1 (reporting your share of income and other business items to be reported on your return). You may have to wait until September 15th for the K-1 and will need until October 15th (the extended due date) to file your 2014 return.
9. Make tax projections for 2015. Owners of pass-through entities who pay estimated taxes must make the first payment for 2015 on April 15, 2015. You can base these payments on your 2014 tax bill or, if you expect lower profits for 2015, you can base these payments on projections for 2015.
10. Learn your lessons. What did you do wrong last year Did you fail to pay sufficient estimated taxes, causing you to make a large lump sum with your return? Were your records and receipts inadequate? Don’t make the same mistakes twice.
The best strategy to use if you work with a tax professional is to meet now and review your tax picture. This will enable the professional to proceed with return preparation and give you a heads up on whether you’ll owe taxes when your return is filed.