Are You Ready for Tax Season?
Taking full advantage of deductions can mean a reduction in taxes.

By Reba Paul

Last year’s tax deadline has long since passed. In fact, we’re more than halfway to next year’s deadline. Although the psychological scars are still fresh, try to repress your painful memories and learn from this year’s tax season. With a little extra investment of your time, you can use your experiences to help guide you through the rest of this year and into next tax season.

Avoid, Not Evade
Retaining a good accountant and/or tax professional can be invaluable in avoiding tax problems, and can help in tax planning. Tax avoidance planning is legal; tax evasion is not. Your tax advisor should know the law and be able to help you take full advantage of deductions and other tax relief. Our tax code is so complicated that sometimes the IRS doesn’t even know what crosses the line. Typically, what sets tax evasion apart from avoidance is the IRS’s finding of fraudulent intent on the part of the business owner/taxpayer. Hire a tax professional who guarantees to cover any additional taxes, interest and penalties you might owe if your return is audited.

The IRS uses these tools to point out possible fraud:

•    A failure to report substantial amounts of income, such as a shareholder's failure to report dividends, or a store owner's failure to report a portion of the daily business receipts.
•    A claim for fictitious or improper deductions on a return, such as a sales representative's substantial overstatement of travel expenses, or a taxpayer's claim of a large deduction for charitable contributions when no verification exists.
•    Accounting irregularities, such as a business's failure to keep adequate records, or a discrepancy between amounts reported on a corporation's return and amounts reported on its financial statements.
•    Improper allocation of income to a related taxpayer who is in a lower tax bracket, such as when a corporation makes distributions to the controlling shareholder's children.

Ignorance Is No Excuse
As a business owner, it’s important that you have a working knowledge of the tax system. Even if you delegate your tax obligations to a professional, you will still bear the ultimate responsibility for making sure these obligations are met. Remember that your tax advisor can’t look out for your best interests without complete and truthful information. For example, you cannot label an expense as something it is not. The substance, not the form, of the transaction determines its taxability. Here is a list of common legal deductions, but check with your tax advisor on the specifics surrounding each type of deduction:
•    Auto expense deductions can be made in one of two ways: either for actual miles driven or for all actual expenses related to business, including gasoline and repair costs.
•    Home office. Work with your tax adviser to determine the percentage of your home that is dedicated to business.
•    Bank charges related to business, including check charges, monthly charges, bank wire fees or overdraft fees
•    Interest and fees on business debt
•    Taxes, including sales tax on business purchases, real estate tax on business property, employer's share of employment taxes, excise taxes and, in some instances, state income tax (may be listed as an itemized deduction on federal tax return)
•    Ongoing costs of doing business, including utilities, shipping, office supplies, advertising and marketing (including sponsorships), rental or lease payments (property and equipment), telephone and Internet charges, software licenses, travel expenses, janitorial maintenance, landscaping and grounds maintenance, office/building repairs and equipment repairs
•    Depreciation is the scheduled decline in value of depreciable assets. Consult with your tax adviser to maximize your deductible amounts.
•    Equipment purchases, including office equipment, furniture and business vehicles. (Certain percentages can be deducted the year of purchase. This varies for new and used items, so consult with your tax adviser.)
•    Business-insurance premiums
•    Business gifts
•    Professional fees, including legal, accounting/bookkeeping, architectural, business consulting and marketing consulting
•    Business-related education, such as seminars, classes, educational tapes or CDs and conventions
•    Trade-show exhibition and/or attendance, including travel, meals, admission fees and costs of booths/exhibitions
•    Trade-related literature, such as journal subscriptions, books and other business literature
•    Retirement contributions can be tricky, so consult with your tax adviser.
•    Membership fees paid to credit bureaus, better business bureaus, chambers of commerce and trade associations
•    Health-insurance premiums
•    Social Security payments – One-half of payments can be deducted if you're self-employed).
•    Moving expenses
•    Charitable contributions
•    Losses from theft, fraud, business-property/contents damage not covered by insurance

Though complicated and arcane, our tax system provides many legal breaks for business owners who are savvy and have knowledgeable tax advisors. It’s not too late to take advantage of deductions and save yourself some financial pain on tax day.

Reba Paul is with Tax Wizardz Accounting, Bookkeeping & Income Tax Preparation in Olathe. She can be reached at (913) 254-1040 or .