small-biz-taxesOwning a small business is hard enough. Add having to deal with filing taxes, and it seems like a herculean task to operate a business each year. Taking care of your business, and just as important, your taxes, will ease your stress levels when it’s all done right. The following are 7 points you must know about filing your taxes the right way so you can avoid an audit, or be prepared for one. 1. Don’t Put off Filing and Recording Keep on top of your income and expenses on a daily basis. Although it might seem like a hassle, putting off recording and filing daily activities may create a tidal of work later creating more anxiety later on. 2. Keep Excellent Records When tax time comes around, having all your records in its place makes filing quick and easy. Make sure your records are clearly marked and easy to identify. Divide your expenses into groups that relate to the names of expenses on the business tax return, such as advertising, utilities, and supplies. 3. Report all Incomes Make sure you report all your income. This includes incomes received from cash, credit card, or even barter. Uncle Sam is interested in making sure you report your full income, and they have computer systems that know what you receive. Be aware that cash transactions that are over $10,000 will need to be filed with using Form 8300 by the 15th the following month. You can download this form on If you collect money from an ATM merchant card (such as Visa or MasterCard) and offer cash-advances, make sure you are tracking on your books those cash-advances. Cash-advances may need to be subtracted out of the reported income on the new Form 1099-K. The Form 1099-K is a new form the credit card companies will send to you (the merchant) reporting income you received via credit cards. 4. Report all Expenses Along with income, you must report all the expenses associated with your business. Keep receipts whenever possible to support your deductions in the event of an audit. If you don’t have receipts, try to reconstruct your expenses and be as detailed as you can and get it on paper. Keep in mind that expenses may include mileage (for travel to work sites) and depreciation of property such as furniture, a car, or equipment. 5. Select the Right Accounting Method for Your Income and Expenses Generally most small businesses have one of two accounting methods: cash or accrual. The cash method requires you to report income in the year it’s received, and expenses when they are paid. On the other hand, the accrual method requires you to report income in the year earned and expenses in the year they incur (when you become liable for them). If you produce, sell or purchase merchandise in your business, you may be required to use the accrual method. Once you decide your accounting method, you will need to receive IRS approval if you ever decide to change it again in the future. 6. Make Sure You are Paying Estimated Taxes Unlike employees that have taxes withheld from their employers, you as a self-employed individual will need to pay your own taxes on a quarterly basis. Generally speaking, estimated taxes are calculated based on the smaller of: 1) 100% of last year’s total tax; or 2) 90% if the estimated tax this year. For tax year 2012, the quarterly estimated tax due dates are 4/17/12, 6/15/12, 9/17/12, and 1/15/13. 7. Separate Business From Personal Accounts Keep a separate bank account for your business. Deposits related to your business should flow into a designated business account. Also, expenses paid by an ATM or a checking account should be only from your business bank account. If you collect credit card payments (like Visa or MasterCard), make sure the incomes are going into a business account. Caution: Don’t keep your business accounts in the same bank as your individual accounts. There are a couple of reasons for this such as to prevent the accident of a business deposit to a personal account (or visa-versa); and to prevent credit card merchants from withdrawing from your personal account(s) in the case of a merchant credit. Even if you decide to shut down your business and close your business bank account, a merchant card credit (meaning money taken out of your account to credit back your customer’s credit card) could occur on your personal bank account if you had kept business and personal accounts at the same bank. Vincent Mangiapane, EA Federal Analyst, Taxbrain