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7 Tax Planning Tips for a Mid-Year Tax Review

CPA Gail Rosen Discusses Mid-Year Tax Planning Tips for Businesses

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7 Ways to Save on Your Business Taxes, Reduce and Audit Risk.
Doing a mid-year review of your business and personal tax returns can save you money at tax time. This article has been updated for 2014 taxes.

1. Higher tax rates are now in effect due to the new health care law (the Affordable Care Act, otherwise known as "Obamacare"). Since 2013, employees and self employed individuals who earn more than $200,000 (and married couples earning more than $250,000) from wages or self-employment income pay an additional .9% Medicare tax. Based on this new additional tax you might consider accelerating income into 2015 and/or delaying expenses to 2014.

Read more about the additional Medicare tax how the new health care law affects your business.

2. Track your business mileage carefully and keep good “as-you-go” records. You have a choice of using the standard mileage rate or the business portion of the actual expenses. If you keep good business records you can save tax money by picking which method works best for your new automobile. The IRS permits taxpayers to use standard mileage rates. The rates for 2014 business mileage are:

  • Business rate is 56 cents per mile.
  • Medical and moving rate is 23.5 cents per mile.
  • Charitable rate is 14 cents per mile.

 

Read more about how the business mileage rates and calculations affect your business taxes.

3. Tax deductions are like money in your pocket. You should constantly be reviewing and keeping track of which business tax deductions to which you are legally entitled. Your savings from taxes range as follows:

  • Besides paying federal and state taxes you pay 13.3% of your company’s profits for social security and medicare tax. This 13.3% tax is higher than what you paid as an employee since you are paying the employers portion of this tax as well as the employee portion.
  • With all of these taxes, every deduction is very valuable. In NJ, for example, the federal, state and self employment taxes have you paying between 25% - 57% tax on the bottom line net income. If you have a total tax rate of 40%, then for every $1,000 deduction you save $400 of total tax money!

Read more about how you can save on taxes with these common business tax deductions.

4. Telephones are no longer listed property. This means the previous detailed record keeping requirements for keeping track of every cell phone call are no longer applicable. This does not mean that the costs of cell phones are fully deductible. There is still a calculation that should be made for personal use. Currently, there is no exact guidance on details of this provision from the IRS.

Read more about how the cell phone deductions work.

5. Pay your taxes and do not incur a penalty. The economy is improving and many clients are telling us that their businesses and their finances are improving. This means that you may owe more taxes. You want to make sure that you do not incur penalties for paying your taxes late and be prepared if you owe money. The law states that in order to avoid a penalty, you must pay the lower of 90% of what you owe or 100% of the tax shown on your prior year return (110% if prior tax return shows adjusted gross income over $150,000 for married filing joint or $75,000 for married filing separate and single).

Read more about business tax due dates.

6. Look at your lifestyle. It is important that your taxes make sense. You should have a personal and business lifestyle that can be supported by the income you report. For example, if you drive a luxury car and have a vacation home, but you report little business (or other personal) income, the IRS will get curious.

Read more about keeping business and personal funds separate.

7. Review your home office expenses. You want to be able to deduct all available home office expenses since this is a very valuable tax deduction. The expenses you can deduct include utilities, home owners insurance, maintenance fees, repairs, and rent or depreciation of a portion of your home that is used regularly and exclusively for business. Review your situation to make sure you comply with the tax rules. Any personal use of the business space will disqualify the home office deduction.

Read more about home office business taxes.

Gail Rosen, CPA is the owner of a well-respected boutique accounting firm in Martinsville, NJ that has been serving individual and business clients for over 27 years. In addition to tax preparation, the firm specializes in assisting business start-ups in understanding their tax responsibilities and what deductions they are entitled to. Gail has earned a reputation for putting complex tax issues into language others can comprehend and profit from. You can email her at grosen@gailrosencpa.com.

Disclaimer: The information in this article and on this GuideSite are for general information purposes only; it is not intended to be tax or legal advice. Each situation is specific; consult your CPA or attorney to discuss your specific business questions.

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