With just a little less than a week until the deadline, you should either be getting your taxes done soon or planning to file for an extension. If you have a small business, you may be looking forward to doing your taxes even less than the average person. But if you look at tax rules as a list of incentives instead of regulations that allow the government to take your money, you may feel differently. After reading this, you may be surprised by the potential tax benefits afforded to business owners. Your eyebrows might also rise when you see some of the potential penalties.
Tax Breaks for Businesses
A good general rule small-business owners should follow to maximize deductions is that 
any expense directly related to or associated with a company is a potential tax savings—potential being an important word to note. There are many deductions to account for, so review the current tax year’s rules and regulations, and hire a professional who understands your business to help best assess your potential deductions.
Office space. One example of a business expense that’s often overlooked, underreported or miscalculated is a home office deduction. Keep in mind that for this space to qualify, it must be used exclusively and regularly as your principal place of business. There are two ways to claim this deduction—the regular method and the simplified option—so ask your tax preparer which is best for you.
On the road. Whether you use your car exclusively, or only occasionally for business, you are entitled to deduct parking fees, tolls, and mileage and/or gas. So, if you drove to visit a client, or headed down to the Atlantic City Convention Center for a conference, get out your receipts, E-ZPass statement and other records so you can claim the appropriate deductions.
Put your money where your mouth is. As a small-business owner, it can feel like you eat, breathe, and sleep your company. This potential deduction focuses on the eating part. As long as the dining expenses are reasonable, you may deduct 50% of meal costs when eating with business partners and employees while conducting business. Keep in mind that the 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients.
Travel smart. If you travel often for business, chances are you have racked up quite a few frequent flyer points with your airline miles. Planning to use those points to reduce business travel costs? If you also enjoy personal travel, think again. Business travel bills are fully deductible as a business expense, while personal travel costs are not.
Businesses Beware
You’ve seen the news stories about companies that failed to pay taxes. While there is no promise of what, if any, penalties you will face if you follow suit, these potential consequences certainly give you something to think about.
Penalty fees. There are two kinds of “not doing” your taxes: failing to file and not paying. Failing to file earns you a penalty of 5% of the tax owed, up to five months out, with a minimum forfeiture of $135, or as much as 100% of the tax owed — whichever is less. If you don’t pay, you’re typically charged a penalty, plus interest.
Forfeit your refund. If you owe the IRS money, you likely won’t see any cash back until you pay up. So, if you didn’t file or you owed taxes one year, then filed the following year and were owed a refund, don’t be surprised if the IRS holds it to cover the original delinquent payment.
No more Social Security. While the IRS cannot prevent you from earning money or literally take your work tools away, the Federal Payment Levy Program does allow them to attack certain assets after going through the appropriate notification process. One of those assets is your Social Security. Specifically, up to 15 percent of your Social Security benefit payments may be levied to pay your delinquent tax debt.
Bad credit. Failing or neglecting to pay your tax bill could affect your credit, especially if your tax bill meets the $10,000 threshold at which the IRS generally issues a tax lien—a claim the IRS makes to your property. A tax lien is considered a serious negative item and could remain on your credit report for seven years after the tax liability is resolved.
Jail time. It’s more of an exception than a rule, but don’t discount this possibility. If the government deems that you’ve willfully failed to file or filed fraudulent returns, it could be submitted as an attempt to defraud the government. Two of the most common offenses that result in this penalty are income being hidden from the IRS, and a pattern or some evidence of wrongdoing.
Tax exceptions and laws change each year, and from state to state. Always consult with your tax preparer before making any claims or deductions.
Taxes are just one component of running a successful small business. One of New Jersey’s leading mutual banks, NVE has supported local business customers since 1887 with products and services that help them grow. Visit the NVE website, one of our convenient neighborhood branches in Bergen County, or call 1-866-NVE BANK (683-2265) to learn how we can help your business grow, too.
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Sources:
http://www.businessinsider.com/what-could-happen-if-you-dont-do-your-taxes-2015-3
http://www.forbes.com/sites/drewhendricks/2015/03/30/5-tips-for-small-businesses-during-tax-season/
http://articles.philly.com/2015-03-17/news/60179475_1_tax-tips-small-biz-deductions
http://www.credit.com/taxes/do-taxes-affect-your-credit-score/
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