Tuesday, December 29, 2015

What Every Small Business Needs to Know Before Filing Taxes in 2016



Making your list, checking it twice. The IRS will find out if you have been naughty or nice. What will your organization receive this tax season, a refund or a penalty? Soon after the festive holiday season, small businesses scramble to make last minute changes in order to comply to tax code changes and take advantage of deductions. Start to review broad stroke mistakes that small businesses should avoid and applicable tax code changes for 2016 today.

Common Mistakes to Avoid

It is far easier to prevent a costly mistake than having to engage in back and forth communications with the IRS to fix an error. Many small businesses fail to get organized for the yearly tax filing process. Consider the following suggestions on avoiding an oversight or miscalculation.
Organize important documents and hire a specialist to handle the paperwork.
  • File online rather than mailing in tax forms.
  • Double check employee information, such as social security numbers of employees and their dependents, and employee identification numbers.
  • Reread returns for typos and miscalculations.
  • Ensure that the IRS is aware of your current business address.
  • Be aware of applicable tax deductions. Travel deductions, petty cash, educational trainings and more may be deducted. Keep track of the small stuff.
  • Reconcile business expenses. Track and support expenses with receipts and review accounts weekly.
  • Know how your business is defined and what tax code changes may apply. This becomes particularly important with changing health care requirements.
  • Meet all employment tax responsibilities. See Employment Taxes for Small Business for more details.
Small businesses would be well advised to hire an employee benefits consultant, and reach out to a local or state chamber of commerce for additional help. Statistically, an estimated 40 percent of small businesses are penalized approximately $845 per year.

This Just In

Entrepreneur reports of challenging tax issues for small business owners in 2016. A disconcerting issue is that there are contradictory definitions of a small business within tax code rules that then forces them to comply with large business tax requirements. Employers will have to deal with new changes as they apply to the Affordable Care Act (ACA) and tax extenders.
·         Health care requirements extend to businesses with 51 to 99 employees from the prior year. Such organizations would now be considered to be large. The individual health-care coverage required by ADA results in an estimated $5,800 a year for businesses. This can easily impact small business bottom lines and narrow healthy profit margins. If small businesses fail to comply next year, they will incur a penalty. Businesses that are now newly mandated have until April 1st to comply.

·         Business owners are also mandated to track payroll data such as hours worked and benefits. Such data must be reported to the IRS. Businesses that fail to comply can receive a penalty of $2,000 per employees, excepting the first 30. More data tracking requires additional time, software purchases and hires to help businesses comply.
·         Businesses are waiting for last minute tax extenders. Such may happen right before the holidays kick in, if the tax extender legislation signed into effect on December 19th of last year is any measure. Organizations received over 50 tax-related credits and deductions spelled out in the $500,000 Section 179 deduction and 50 percent bonus depreciation. If an extension does not happen this year, the Section 179 deduction will be slashed to $25,000 and there will be no bonus depreciation. Such late date tactics make it difficult for organizations to plan ahead.

·         Small businesses are hit hard when it comes to business identity theft. Business owners are taken unaware and only find out that they have been a victim of identity theft when notices are received from the IRS or other agencies. Businesses must work to repair their reputation, correct financial issues and settle fears of staff and clients. Identity theft for small businesses has risen since criminals have found that they can receive higher refunds when posing as a business.
It is no wonder that as the year draws to a close, businesses large and small become overwhelmed as they attempt to accurately comply with all tax requirements. Take the time to triple check forms prior to submission to avoid any unnecessary headaches.

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