Another tax season is in the books and with it comes our annual list of things we learned from this tax season. We worked with many individuals and businesses and each year there are common elements we have identified across the board from preparing taxes. Here are the three things were learned this tax season.
- Keep Track of Your Expenses!
For businesses that started up in 2014, we noticed that keeping track of expenses was not a high priority this year. Therefore, when tax time came around, these businesses were not prepared. If you are a startup, it is imperative that you put an accounting system in place when you start your business. Most accounting systems will pull information from your business bank account and allow you to capture the information you need to understand the financial health of your business and make tax time go much more smoothly. Also, for businesses, most expenses will be tax deductible as long as the expense is necessary and ordinary to the business.
- Build A Wall Between You and Your Business
Going along with point #1, when you start your business, you need to make sure you have the proper legal organization in place in order to separate your legal liabilities from your business from yourself. Another piece to that puzzle is making sure you have business bank and credit card accounts setup as well. Not only does this create another dividing line between you and your business, but it also keeps all of your business income and expense activity together, which come tax time, it is much easier to pull together the information you need for your business taxes. This was another common area that tripped up people as trying to comb through your personal bank account to pick out all of the business items is time consuming and somewhat daunting. Furthermore, you are likely to not capture all of your business expenses, which then leaves money on the table.
- Watch out for the Alternative Minimum Tax
Now that the economy is improving, people’s income has risen due to receiving raises at work or starting a new job. With higher income comes the unfortunate tax code monster that is the alternative minimum tax or AMT for short. The AMT monster will destroy most of your deductions and raise your marginal tax rate to at least 28%. Finding out the AMT monster has taken an ax to your tax return is a frightening proposition. This year, more people got entangled with the AMT monster than in years past. Once tax time rolls around, there is very little you can do to deal with the AMT monster except to feed it your hard earned cash. In order to effectively deal with the AMT monster, you will need to prepare in advance, which means having a tax planning session with your CPA during the year so you can make the adjustments to make the AMT monster more bearable or make it go away entirely.
With this knowledge in hand, now is the time to start preparing for your 2015 taxes and making the changes and adjustments to put you and your business in a good place come tax time next year.