6 Tax Preparation Tips for First-Time Small Business Owners

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6 Tax Preparation Tips for First-Time Small
Business Owners
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Keep Business and Personal Expenses Separate
Many business owners unintentionally blur the
lines between their personal and business
accounting services, especially sole proprietors.
Fortunately, the problems this causes can be
avoided with a little care upfront. From the
IRSs viewpoint, a business must look and conduct
itself as a business. Mixing personal expenses
with those of your company raises the possibility
that the IRS treats it as a hobby. To avoid this,
maintain separate bank accounts and credit cards
in your businesss name and prepare regular
statements.
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Get Your Records in Good Shape
Good and thorough documentation is important,
even essential, to justifying many deductions
from income. Entertainment Keep a diary of all
entertainment expenses. Generally, only 50 of
food, beverage, and entertainment expenses are
deductible, subject to certain exclusions. Travel 
To support mileage expenses on an automobile,
you should keep a trip log separating personal
and business use.
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Review Accounts Receivable and Inventory Balances
Before closing your books for year end, review
your accounts receivable for collectibility. Any
account likely to be uncollectible should be
written off since it reduces your revenue and
consequently your tax liability. If you have raw,
in-process, or finished inventory, review its
value for marketability. Obsolete or unusable
inventory should be written down to scrap value
to reduce revenues and lower your tax bill. Get
business accounting services for assistance.
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Review Equipment Purchases
As per the business income limitation, you cannot
claim a Section 179 deduction if it creates or
increases an overall business tax loss. Be aware
that using Section 179 deductions for real
property may trigger high taxes on ordinary
income gains when the property is sold. Bonus
depreciation of 50 for the first year is also
available for some tangible personal property
including software and certain leasehold costs if
the expense was incurred in 2013 and the asset
placed into service.
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Check Potential Tax Credits
While credits and deductions both reduce your
potential taxes, the former do so on a
dollar-for-dollar basis while deductions reduce
your taxable income so their net effect is
savings equal to your tax rate. For example,
suppose ABC Company has a taxable income of
100,000 with taxes due of 22,250. A tax
deduction of 10,000 would reduce its taxable
income to 90,000 resulting in taxes due of
18,850. The 10,000 deduction produces 3,400 in
tax savings.
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Prepare For The Coming Year
As you progress through your first-year tax
filing, note the areas in which you lacked
sufficient documentation or discovered decisions
which might be modified to result in lower taxes
for this year. Rather than waiting until the end
of this year to prepare for the 2021 tax season,
implement the necessary changes as soon as
possible. Confirm all employees withholding
statuses and update their W-4 information for tax
year 2020. 
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Thank You
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