In my last blog post, “Tax Tips for Small Businesses,” I listed a few tax tips for entrepreneurs. If you haven’t filed yet, you still have about a month and a half before the April 15 deadline. Check out these additional tips that will help when it comes to getting squared away with Uncle Sam.
DETERMINE YOUR ESTIMATED TAX: Estimated taxes are assessed on income that is not subject to withholding, including self-employment income, dividend income, rental income, interest income, and capital gains. They’re quarterly advanced payments of taxes based upon the amount of income earned and the estimated tax liability that will be incurred from that income. The first quarter corresponds with the calendar year and ends April 15.
Here’s how it works: Say you paid $10,000 in estimated taxes in 2007 and you can base 2008 payments on the same figure, if income is likely to be the same. Here’s the catch: “If the estimated taxes paid do not equal at least 90% of the taxpayer’s actual tax liability, interest and penalties are assessed against the delinquent amount,†says Abe Schneier, senior technical manager at the American Institute of Certified Public Accountants.
MAKE USE OF OLD INVENTORY: If you have old inventory, consider donating it to charity. “The IRS allows a tax break in those kinds of situations,†Schneier says. The key is finding the right charity. The IRS Web site has a list of recognized charitable organizations you can donate to. This can be a beneficial tax deduction when it’s time to file. There is also the option of writing down inventory, which may be a bit more difficult. Write-offs remove excess inventory for your books. “If you’re going to write down the value of inventory, you have to show it’s obsolete, and there is no market for it,†Schneier explains.
Make sure you don’t need any elections or changes in your accounting method for valuing inventory.
What are some of your strategies to make tax day as painless as possible?
Renita Burns is the editorial assistant at BlackEnterprise.com.