5 Things You Can Do Now to Prepare for April 15th

Make tax season less stressful by using our top 5 ways to quickly and easily prepare your small business for April 15th – tax day! – this year.

As a small business owner, chances are you’re not only juggling multiple projects at any given moment, you’re probably wearing multiple hats as well. Be honest, haven’t there been days where you’ve served as your company’s marketing director, customer service rep, accountant and PR department, all within a few hours?

Automation is the key to getting your taxes done faster and with less of a headache. Here are our top 5 ways to quickly and easily prepare your small business for tax day this year.

1. Scan your receipts

First thing’s first – you need to ditch that mound of paper clutter that’s been taking up space on your desk. If you’re already a Shoeboxed user, you’re one step ahead! If not, consider signing up for a 30-day free trial and let us take care of all those receipts for you.

Shoeboxed lets you toss all of your receipts, bank statements, and any other paperwork that needs to be scanned into one of our famous Magic Envelopes for processing. Just throw everything in the envelope, toss the envelope in the mail, and then watch as your account is magically populated with digital data– and images of your scanned receipts!

Not only are all of your receipts scanned and digitized, they’re also searchable, editable and exportable, meaning you can create one-click expense reports based on receipts in certain tax categories.

2. Revisit your write-offs

You may think you know what you can and can’t deduct, but tax laws change every year. Be sure you’re up to date by checking out the IRS website, and think outside the box.

Did you remember to include any business-related apps you purchased for your smartphone or tablet? What about health insurances premiums paid out for employees, or yourself?

By spending a few minutes brushing up on this year’s deductions, you’ll be able to reduce the amount owed to the IRS, and even end up with a refund.

3. Use accounting automation software

Even if you have an accountant or tax professional, you still need accounting software. We like GoDaddy Online Bookkeeping (formerly Outright) and QuickBooks Online because they’re super easy to use and save you tons of time doing mind-numbing calculations. Accounting software will also save you money because your accountant won’t have to spend hours calculating receipt totals.

4. Link your accounts

Once you have automation software in place, it’s a good idea to link all of your business financial accounts within the application. Accounting software technology is so advanced, it can tell which of your purchases are deductible expenses! When you purchase office supplies, for instance, the software will automatically categorize that expense in the appropriate tax category.

But it only works if you link all of your accounts, so take a few minutes to link everything from your business checking account to PayPal. This way, you’ll get a comprehensive overview of the financial health of your small business, and it’ll be much easier to generate reports come tax time.

5. Categorize your receipts

Just as accounting software categorizes each transaction, Shoeboxed categorizes your receipts. This is done automatically, but when you have a receipt that’s illegible, it’s important to log into your account and manually categorize it.

Take a few minutes per day during the months of February and March to categorize your receipts, and you’ll be good to go long before April 15 rolls around.

What are you doing to prepare for tax day?

Employee vs. Contractor: What You Don’t Know Can Hurt You

Did you know there’s a huge difference between a freelancer/contractor and an employee, especially when it comes to taxes? It’s been such an issue that the IRS is cracking down on businesses that confuse the two when it comes to tax collection and filing. Are you sure you’ve correctly categorized your workers? The lines are a little more complicated than you might think.

This post is brought to you by GoDaddy Online Bookkeeping (formerly Outright) the simplest way to manage your small business finances online. Sign up today for a less taxing tax time!

Did you know there’s a huge difference between a freelancer/contractor and an employee? As a business owner you most likely knew that; one is someone you bring in for a temp job and the other is someone who comes in every day (or at least a lot of them) to do regular, daily work. Who doesn’t know that?

Strangely, some business owners don’t know, at least when it comes to taxes. It’s been such an issue that the IRS is cracking down on businesses that confuse the two when it comes to tax collection and filing. Are you sure you’ve correctly categorized your workers? The lines are a little more complicated than you might think.

What the IRS Has to Say

There are actually several differences between an employee and a freelancer, and they’re not all what you would expect. Some of them seem a little picky and arbitrary but they exist for perfectly good reasons.

For example, did you know the IRS might consider a freelancer an employee if they come into your office every day? While you hired them as a contractor, their presence every single day could make them appear as an employee. However, that’s just one of several criteria they must meet to be considered a freelancer.

Another caveat is they have to have their own “business identity:” business cards, an office, their own business line… something to differentiate them as a separate entity. Also, they should require a contract for every single job, even if it’s a repeat job.

Payment is a particularly big deal when comparing the two. Do you pay your freelancer on a regular basis, like every two weeks or every month? This isn’t a good idea – pay them per job or whatever is in the contract you signed with them. Regular payments make them look like an employee.

One last criterion is that the freelancer should come with their own training – you hired them because of their specialty, not to shape them yourself. A little bit of training in your own business processes is okay, but too much may land you in hot water.

Why the Difference?

The IRS is in the business of collecting income tax on every penny of income earned. Whether you intend it that way or not, they consider shenanigans when it comes to classifying workers a potential way around paying all the income tax you (or your employee/contractor) owe.

Employees and freelancers don’t get treated the same when it comes to taxes. Basically, you help your employees figure out taxes by taking it out of their paycheck every period. On the other hand, you pay freelancers a lump sum and then they figure out their own taxes.  For example, you would send an employee form W-2 at the end of the year while you’d send a contractor form 1099-MISC.

As mentioned, some businesses were skating the rules by claiming employees as freelancers and vice versa. This gave them an advantage with their own taxes for one reason or another. This is why the rules are now more enforced than ever before and why you need to be careful.

So what happens if you goof or intentionally misreport this info? Look forward to a lengthy audit of everything else on your taxes, not to mention big fines and penalties if the mistake is bad enough. Just get it right in the first place and you won’t have to worry about it!

The Truth About Business Travel Deductions

Business travel deductions are some of the most common deductions taken by small business owners, but they’re also the most misunderstood.

Many of the expenses incurred while traveling for business count as tax write-offs, but there are two important distinctions to keep in mind:

  1. Figuring out whether you’re really traveling, at least according to the IRS.
  2. Determining which travel expenses can be written off, and how much can be written off (i.e. not every expense is 100% deductible).

Are you traveling?

You may have a heck of a commute to work every day, even traveling out of state to get to your place of business. You may also frequently travel to different job sites, or spend a few days per week at a different location.

However, none of the above necessarily means you can deduct expenses under the business travel umbrella.

The IRS is chiefly concerned with the location of your business home base. Let’s say you live in Orange County, but you work in West Hollywood. (What are you, crazy?)

With such a tough commute, you’ll probably have to stay in West Hollywood during the week, and return home to the OC on weekends. According to the IRS, neither the time spent in WeHo or the OC is time spent “traveling.” Since your tax home is in West Hollywood, the money you spend on hotel rooms and eating out is not considered a business travel deduction because you are, at least according to Uncle Sam, already “home.”

You aren’t officially traveling until you’re required to stay overnight away from your business home. The overnight stay has to be necessary, too – you can’t take a meeting an hour away from the office then decide to stay in a hotel just because you don’t feel like driving back (well, you can – you just can’t write it off.)

Basically business travel deductions can only be applied to “regular” business travel; the kind where you get on a plane (or drive really far), stay in a hotel, and engage in some sort of business activity.

Is it a write-off?

Once you’ve determined that you’re officially traveling for business, it’s time to go nuts, track every penny you spend, and write off every dime. Right?

Unfortunately, not all business travel write offs are created equal.

Here is a basic breakdown of expenses that can be written off while traveling for business, and the percentage of each item that can be deducted:

  • Hotel rooms and lodging: You can deduct up to 100% of the cost of your accommodations while traveling for business. Might as well spring for the 5-star hotel, as long as it’s within a reasonable distance of your business location.
  • Airfare and transportation: If you’re paying with points or frequent flyer miles, you cannot deduct the cost of airfare. If you’re paying out of pocket, airfare is usually 100% deductible. Rental cars, cab fare, tolls, shuttle rides, gas and/or mileage is all deductible as well – just be sure to scan your receipts using the Shoeboxed app (a free download for iOS and Android!) on your smartphone to track these easy-to-forget expenses.
  • Meals and entertainment: Your meals are usually only 50% deductible. Entertainment may be 50% deductible as well if you can prove it’s related to business. For example, if you’re at a conference in Vegas and you treat yourself to a Cirque du Soleil show, that’s probably not going to fly. If, however, you’re treating a group of investors to a Cirque du Soleil show, Uncle Sam will be more inclined to approve the deduction.
  • Tips: Be sure to keep track of every tip you give, because they’re 100% deductible while traveling for business. An easy way to do this is to edit the receipt on which you tipped within your Shoeboxed account. When you upload your receipt from the hotel, for instance, you can add a note indicating how much you tipped the bellhop, the maid, etc.
  • Dry cleaning: There’s no need to spend money on dry cleaning at home when Uncle Sam will foot the bill while you’re traveling. Feel free to have your clothes sent out and take the deduction (within reason, however – lugging your entire wardrobe to a two-day conference in Tucson might look suspicious).
  • Internet and office expenses: Any expenses incurred while using the hotel’s business center, like sending faxes, scanning, printing, or using the Internet, can all be deducted up to 100%. If you need to buy office supplies or pay to use WiFi within the conference center, those things are deductible too.

What questions do you have about business travel deductions? Let us know in the comments!