Tax Tips For Small Businesses

National Small Business Week
May 5-11, 2019

National Small Business Week began more than 50 years ago as a way of recognizing the invaluable contributions of America’s small business owners and entrepreneurs.

More than half of Americans either own or work for a small business. Small businesses create about two out of every three new jobs in the U.S. each year. These businesses drive innovation and increase America’s global competitiveness.

Since we chose to write about IRS transcripts last week, we thought we would reflect on a few tips for small businesses this week.

Deducting Vehicle Costs

Businesses that use a car or other vehicle may be able to deduct the expense of operating that vehicle on their taxes. Businesses generally can use one of the two methods to figure deductible vehicle expenses:

Standard mileage rate
Actual car expenses

For 2019, here are the standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, or moving purposes:

58 cents per mile driven for business use
20 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Of course, business taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Here are some facts to help business owners understand the differences between the two methods of figuring deductible vehicle expenses:

Businesses that want to use the standard mileage rate for a car they own must choose to use the standard mileage rate in the first year they use the vehicle. Then, in later years, they can choose to use either the standard mileage rate or actual expenses.
If a business wants to use the standard mileage rate for a car they lease, they must use this rate for the entire lease period.
The business must make the choice to use the standard mileage rate by the due date of their return, including extensions. They can’t revoke the choice.
A business that qualifies to use both methods may want to figure their deduction both ways to see which gives them a larger deduction.
Here are some examples of actual car expenses that a business can deduct:

o Licenses
o Gas
o Oil
o Tolls
o Insurance
o Repairs
o Depreciation – limitations and adjustments may apply

Publication 463, Travel, Gift and Car Expenses, provides a full list of actual expenses and how to calculate them.

Recordkeeping Tips for Small Businesses

As a small business owner, it is imperative to keep good records. This applies to all businesses, whether you have a couple of dozen employees or just a few. Keeping good records is an important part of running a successful business whether your business installs software, bakes cakes, cuts lawns, or cuts hair.

Five Tips For Good Recordkeeping

1. Pros of Keeping Good Records

Good records will help you:

Monitor the progress of your business
Prepare financial statements
Identify income sources
Keep track of expenses
Prepare tax returns and support items reported on tax returns

2. Recordkeeping System

Small business owners may choose any recordkeeping system that fits their business. You should choose one that clearly shows income and expenses. Except in a few cases, the law does not require special kinds of records.

3. Recording Transactions

A good recordkeeping system includes a summary of all business transactions. These are usually kept in books called journals and ledgers, which can be purchased at an office supply store.

All requirements that apply to hard copy books and records also apply to electronic business records.

4. Burden of Proof

The responsibility to validate information on tax returns is known as the burden of proof. Small business owners must be able to prove expenses to deduct them.

5. File Retention

How long a document should be kept depends on several factors. These factors include the action, expense, and event recorded in the document. You should keep records for at least three years.

Business owners should keep all records of employment taxes for at least four years.