How to Get Your Small Business Tax Ready | Reporting All Business Expenses
Last time we discussed how to calculate the cost of goods sold to determine your gross profit. The third step in getting your small business tax ready is ensuring you have accurately reported all of your business expenses.
All expenses incurred to run your business should be tracked and reported on your tax return. Some business expenses are very straight forward, others are not. Below is a quick check list of the most often used tax deductible business expenses:
- Advertising : All forms of marketing including website, radio or television media, print, show or conference displays
- Sponsorship Advertising: If your name is included in the promotional materials for a non-profit event, or displayed on sports team information showing you as sponsor, get a copy of the materials and keep it in with your receipt for sponsorship money
- Fees Charged for Networking Events: If the cost includes a meal, this cost should be recorded in meals and entertainment.
- Continuing Education and/or Seminar Expenses
- Insurance: Only business insurance goes here. This does not include auto, health or disability
- Rent: The amount paid for business space or for equipment. This area needs to be addressed at year end for 1099-Misc possibilities. Rent paid to any individual or business for $600 or more needs to be issued a 1099.
- Interest: This includes business loans interest. However, if credit card finance charges were incurred, these charges need to be reviewed to determine if personal finance charges were included. Do not include the personal finance charges.
- Bank and Credit Card Fees
- Supplies: Supplies should be broken down by group:
- Cleaning supplies
- Office supplies which include computer supplies, postage, paper, pens
- Supplies used In the course of your business. These would include trade books or magazines, and items that are needed for use for your particular type of business.
- Professional fees: Legal, accounting, computer, consultants. Review totals for 1099-Misc needs. Make sure to include the portion of your tax preparation fees that are directly related to the reporting of your business.
- Taxes and License Fees: Personal property tax paid to the county. Use tax paid on the sales tax return and sales tax if included in the total sales reported.
There are several other expenses to review:
- Review your mileage log for vehicle business use expense. The standard mileage rate is 55.5 cents in 2012 and 56.5 cents in 2013
- You will need the total miles driven in the year along with total business miles driven to determine your mileage deduction. If you have any W2 income, you will also need to know how many miles to and from your job.
- Cell Phones: Cell phones or other expenses for items that are used both personally and for business. You need to track total use and business use to get a percentage for calculating the amount deductible for business.
- Meals, Entertainment and Travel Expenses
- You will need to answer the following questions: with whom, where, business reason why, when and how much.
- If you are traveling, include agendas or other information that proves business travel time frames.