Tax day is still a few months away, but your IT business can prepare now so you don't have to rush your paperwork later. These tips can help you figure out what to do before sitting down with your accountant this year and help you simplify next year's taxes.
How to Prepare for This Tax Season
- Gather receipts for business equipment purchases. "If you purchased assets for your business, such as computers, printers, or furniture, you may be eligible to deduct 100 percent of the cost of these items under the Section 179 tax code," says
Crystalynn Shelton, a
CPA and writer at
Fit Small Business.
"Keep track of the date of purchase, amount, and the description for each item, as well as a copy of the receipt."
- Calculate home office expenses. "If you use a guest bedroom or a portion of your living room as office space, you could be eligible to deduct a percentage of your household utilities, rent/mortgage, and insurance," says Shelton. Make copies of your utility bills, mortgage payments, etc., so your accountant can calculate what percentage you can deduct as a business expense.
- Hire an accountant who does more than just file your taxes. Work with someone who can help you make good financial decisions year-round. If you don't already have an accountant, look for one who can also function as a de facto financial advisor. "You should choose a tax professional that will help you identify ways to improve your protection, mitigate more taxes, and save you time," says
co-owner and founder of
Nuance Financial Tax and Accounting in Minneapolis.
Be Proactive with Next Year's Taxes
Use these tips to ease the burden of next year's taxes:
- Invest in accounting software. If you've been manually tracking payables and receivables, consider purchasing software to do the job for you. It will streamline your day-to-day operations and pay off during tax season. "Tax time will be a breeze if you invest in accounting software like QuickBooks Online or Xero to keep track of income and expenses throughout the year," says Shelton.
- Track your mileage. Business use of your car is tax deductible. "If you frequently travel to your clients' offices, download a mileage tracker app like MileIQ or Hurdlr," says Shelton. "Once you download the app, they will automatically detect your vehicle movements and keep track of your miles."
- Keep your personal and business finances separate.
Westwood Tax & Consulting, a New York-based accounting firm, suggests,
"Set up separate checking, savings, and credit card accounts for your business so you don't mix up your spending."
- Pay quarterly estimated taxes. "Everyone has to pay taxes on the income they earn," says Zimmelman. "If you're self-employed, you likely end up with a big tax bill at the end of every year. In order to avoid a big tax bill all at once, some people make estimated tax payments four times a year instead. You can calculate your estimated tax by figuring your expected adjusted gross income, taxable income, deductions, and credits."
If you need more ideas on how to manage tax obligations for your IT business, read “How IT Freelancers Can Avoid Tax-Season Nightmares.”
And don’t forget – business insurance is tax deductible, too. Save money on your coverage with TechInsurance. Fill out an application today to compare quotes from top-rated U.S. carriers.
About the Contributors
Nick Meester is the co-owner of Nuance Financial Tax and Accounting, a bookkeeping, tax, accounting, and payroll company based in Minneapolis that serves small businesses across the nation. The company empowers small businesses to focus on what they do best by serving as their outsourced accountants, bookkeepers, payroll specialists, and tax consultants.
Crystalynn Shelton is a CPA and writer at Fit Small Business. Her area of expertise is small business bookkeeping and accounting. She is also an adjunct instructor at UCLA Extension, where for eight years she has taught hundreds of small-business owners how to set up and manage their books using QuickBooks. Prior to joining Fit Small Business, Crystalynn was a senior learning specialist at Intuit for three years. Prior to that, she ran her own QuickBooks consulting and training business.
A forward-thinking entrepreneur and passionate family man, Josh Zimmelman graduated from Yeshiva University in 2003 with a degree in accounting. After learning the ropes and excelling at several large firms, Josh took the leap to launch his own firm in 2010. In just a few years, Westwood Tax & Consulting has become a booming full-service accounting firm that demystifies the perplexing world of taxes for individuals and small businesses.