“In this world, nothing can be said to be certain except death and taxes.“—Benjamin Franklin, U.S. Founding Father
In the United States, we’ve been conditioned—individually and collective—to dread the approach of April 15 each year. In 2016, however, we have the gift of three extra days before our taxes come due on Monday, April 18, because Federal employees celebrate Emancipation Day (observed on Friday, April 15 this year), so they get the day off. Hooray!
While I’m no tax professional, I do have my own experience as a small businessperson to guide me and pass on to others. First, make sure you shred no-longer needed paper files, especially if they’ve already been digitized. To make the job easier, use an automatic shredder like my favorite Fellowes 200C.
My second tidbit is simple: if you can, pass the buck to a knowledgeable accountant, ideally a CPA, who knows the 3.7 million-word tax code better than you do. (By comparison, the entire Constitution of the United States, including all the amendments, weighs in at about 7,600 words.) Accountants may not know it by heart (how could that be humanly possible?), but they’re definitely an expert compared to you… unless, of course, you’re an accountant yourself.
Professional help is especially important if you have more than a few W-2 employees and 1099 contractors. A tax professional is the best way to ensure you’re in compliance. Take the time to interview several, to make sure your accountant is right for you. Make sure they are familiar with your situation and have dealt with similar circumstances as yours. Ask for referrals and check the local grapevine to see what your colleagues think of a particular accountant. Good accountants will provide more value than what you pay them.
If you try to do taxes yourself, it’s easy to slip up and either miss out on deductions, or inadvertently trigger an audit. For example, most of us deduct a home office. Some tax experts believe this is an instant red flag to the IRS, since you or anyone in the house can use your Internet, desk, and landline for things other than work. Other experts, however, don’t believe the IRS cares that much about home offices. Since this remains a contentious issue, it’s best to take a careful middle ground. If you have a home office, keep it in a separate room not used for anything else. If you can’t, carefully calculate the amount of space in the room you use as a home office, the percentage of time you use it, and go from there.
If you use a landline or cellphone only for business, you can deduct 100% of the costs. I’ll warn you now: the IRS will doubt a claim that a landline is solely for business if you have only one. They’re more likely to accept cellphone claims, though. If you use your phone only partly for work, deduct that percentage of expenses. For example, if half your calls are work-related, deduct 50%. You can highlight those calls on your physical bills if the IRS demands proof.
Those of us who use a home office completely detached from the home have it easier, because it’s simpler to justify and prove the usage of that particular space for that reason. In addition, if you had the detached office built specifically for that purpose, you can usually deduct the cost of the construction. Typically, you can deduct the entire cost in one year or depreciate it over a number of years as you use it.
Other purchases, like computers, peripherals, and anything else used exclusively for your workspace or for your work itself (in or out of the office) you can usually deduct in the same way. You can also deduct office supplies and professional education. In recent years, the IRS has allowed taxpayers to deduct the cost of software and software subscriptions (think anti-viruses) as well as professional magazine/journal subscriptions.
Out and About
You can deduct most trip expenses as well. The IRS may not believe you just had to take a cruise ship to visit a client in the Bahamas (though frankly, it may cost less than some plane ticket and hotel combos!), but otherwise you can deduct 100% of your travel and lodging expenses, whether you drove, flew, floated, or went by rail. You can’t entirely deduct your meals, though you can deduct up to 50%—including those you treat your clients to. While some experts suggest you stay in top-flight hotels while eating fast food, you may as well treat yourself to decent grub. Half-price at a quality restaurant is an excellent deal, and your clients deserve no less.
Deduct your auto expenses for work, too. You can either keep receipts for everything (fuel, maintenance, etc.), or you can keep a logbook where you jot down the actual mileage and take a deduction that, in recent years, has come to around 56 cents per mile. It may drop this year, as it did last year, due to plunging fuel prices. Many small business people prefer to use the mileage method.
If you decide to do your own taxes, don’t bother to wade through paper. Pay the hundred bucks to buy a new version of tax preparation software, such as TurboTax (and deduct its cost if you can). If you’re using the same computer as last year, it will pre-populate some fields before you even start and walk you through every possible deduction, both personal and business. Take the time to follow the instructions, and don’t skip anything. You may find deductions you don’t expect, and the programmers will have taken into account any relevant changes in the tax laws (to the point of releasing upgrades as the laws change).
And don’t hesitate to take a deduction, even if you’re not entirely sure it applies. Research it diligently, and then follow through on what you’ve learned. Even if you’re audited and discover you shouldn’t have taken it, the IRS won’t throw you in jail for something so minor. Just make sure you get your taxes in on time and pay the government what you owe (if applicable), and you’ll be sitting pretty—for three extra days!
© 2016 Laura Stack. Laura Stack, MBA, CSP, CPAE is an award-winning keynote speaker, bestselling author, and noted authority on employee and team productivity. She is the president of The Productivity Pro, Inc., a company dedicated to helping leaders increase workplace performance in high-stress environments. Stack has authored seven books, including Doing the Right Things Right: How the Effective Executive Spends Time (January 18, 2016). She is a past president of the National Speakers Association, and in 2015 was inducted into its exclusive Speaker Hall of Fame (with fewer than 175 members worldwide). Stack’s clients include Cisco Systems, Wal-Mart, and Bank of America, and she has been featured on the CBS Early Show and CNN, and in the New York Times. To have Laura Stack speak at your next event, call 303-471-7401 or visit her website.