Small Business Tax Considerations for Year-End 2014

IMGCAP(1)]And so it begins, the time of year when you’re likely to get inundated with appointment requests and phone calls from your small business clients, looking for advice to help them save money and protect them from potential IRS penalties as they close out the books for 2014.

It’s natural they turn to you, their most trusted advisor, for this support. And how you respond says a lot about your firm and the value you place on developing long-term relationships with your small business clients.

Communication, knowledge and education are the keys to offering your clients unparalleled service and value. Take this opportunity to inform your clients about items of increasing regulatory importance, and be sure they have a solid understanding of some of the fundamentals. 

Here are three tax considerations to share with your small business clients as we approach year-end 2014:

Be Aware of State Tax Nexus Laws
As most accountants know, a nexus in tax law applies to businesses that have a physical location within a state, and consequently impose taxes on out-of-state businesses that operate within their borders. Not all businesses are liable for sales tax under a nexus, but if a business falls under one of the following categories they may be liable: resident employees working within the state where the business is located; the business’s physical location is within the state; the business has tangible or intangible property in the state; or employees solicit business within the state. Each state has nexus laws to govern sales taxes, so it’s important for businesses to have an expert available to educate them on tax laws that impact the specific areas where they do business. 

Take Losses
According to the IRS, “a business bad debt is a loss from the worthlessness of a debt that was either created or acquired in your trade or business.” Bad debts for businesses are normally deducted from taxable income in the year they become worthless. As such, accountants should counsel small business clients to keep adequate records of collection activities to support a position claiming worthlessness of debt in the event the IRS challenges the bad debt deduction.

Take Advantage of Business Operating Deductions
One of the most comprehensive and common tax tips accountants and business owners should be aware of is to take advantage of business operating deductions. While many of these are well-known and taken advantage of on a regular basis, the IRS has made available on its website a list of business deductions to point you in the right direction.

Following is a brief summary of some of the deductions:

* Capital expenses: Costs that are part of the investment in your business are called capital expenses. There are three different costs that can be capitalized: business start-up costs, business assets, and improvements.

* Business use of your home: If part of your home is used for business, certain expenses may be deducted. These include insurance, utilities and depreciation.

* Business use of your car: You can deduct car expenses if the vehicle is used for business. Business mileage must be kept separate from personal mileage and the actual mileage must be tracked. The IRS shares a list of current mileage rates as well as those from prior years on its website.

* For a more inclusive list of deductible business expenses please see Publication 535 from the IRS.

Business owners don’t have the expertise to effectively manage complicated tax incentives and other considerations. Enhance your role as trusted advisor and provide that support. By sharing these and other tax tips with your small business clients, you’re not only helping to educate them, you’re solidifying the bonds of partnership, not to mention saving them valuable time and money.

Mike Trabold is director of compliance risk at Paychex, Inc.