5 Things Your 2013 Tax Return Can Teach You About Your Business

Nellie Akalp for Mashable writes:  Are you breathing a sigh of relief that another tax filing deadline has passed? Waiting anxiously for your return, if you got one? Now that the 2013 tax season is over, most people won’t think about taxes until next year. However, this is the best time to begin planning for next year’s return, while the trials and tribulations of this past filing are still fresh in your mind. 

Revisiting your 2013 tax return now can help save you money with your 2014 filing. In addition, your tax return can even yield important insight on your financial health. Here are five things to look at:

1. There's room to improve your record keeping.

People often pay more income tax than necessary due to poor organization and record keeping. This is particularly true when it comes to deductible expenses related to a small business or rental property, as well as itemized deductions such as charitable contributions. If you don’t keep track of these expenses throughout the year, it can be a huge pain to try to track down every receipt when April rolls around. 

If you struggled to prepare your expenses for 2013, get organized right now for 2014. There are dedicated apps to help the cause. For example, Milebug and Mileage Log+ record mileage when you’re traveling for business, medical, or charitable purposes. Expensify tracks small business expenses, and Shoeboxed captures your paper receipts. Slice pulls information from e-receipts in your email inbox, so you won’t overlook online purchases for textbooks and small business expenses. And iDonatedIt helps track your non-cash charitable contributions.

See also: 8 Situations When You Need to Incorporate Your Startup

2. You paid too much in self-employment taxes.

If you reported self-employed income in 2013, you probably felt the sting of self-employment taxes. That’s particularly true since the rate for 2013 (and 2014) has reverted back from the lowered rates enjoyed in 2011 and 2012. You can’t avoid paying these taxes entirely, but there are a few things you can do. First, speak with a CPA or tax advisor to see if you should change your business structure to a corporation or LLC that’s taxed like an S Corporation. 

However, the most important way to deal with self-employment tax is to ensure that your pricing reflects these higher costs. When you’re an employee, your employer pays about half of your Medicare and Social Security taxes. But when you’re self-employed, you are on the hook for the whole thing (the self-employment tax is how you pay into Medicare and Social Security). Make sure you are compensating yourself enough to pay for this tax.

3. You need to step up your retirement savings.

Your tax return can tell you whether you’ve made the most of your retirement savings options. Everyone should throw in as much money as they can into their retirement savings plans, since it not only helps you prepare for the future, but also cuts down your taxable income for the year.
For example, for 2014 you can defer up to $17,500 to a 401(k), 403(b) and most 457 plans. To hit the maximum for your 401(k) contribution, you’ll need to contribute $1,458 per month. And to get a sense of the tax savings, it you’re in the 25% tax bracket, you’ll be saving more than $4,000 in federal income taxes by contributing to the limit.

See also: The 7 Most Important Hires for Your Small Business

4. You're not expensing enough.

If you are self-employed, what does your Schedule C or 1120/1120-S look like? Does your profit/loss statement show mainly revenue, with few expenses? While most business owners want to keep their company running in the black, it is possible that you are paying more than necessary in taxes by not making enough deductible purchases. Discuss your options for 2014 with a CPA. Perhaps you’ll need to make a few key technology or marketing investments this year, or expense more travel and entertaining costs.

5. You didn't set enough aside for taxes during the year.

Did you get a nasty surprise that you didn’t put away enough to cover your 2013 taxes? Did you owe more than you expected? There are a few ways to address this problem for 2014. If an employer withholds taxes throughout the year, check that your W-4 form reflects your status and tax bracket. In some cases, an employee’s taxes are withheld in the 10% bracket, causing them to write a big check come April 15. Updating a W-4 is a simple fix that can save you this pain at tax time. 

If you’re self-employed or a small business owner, you are required to pay taxes on a quarterly basis. Get into the habit of automatically setting aside a percentage of each cash receipt for your tax obligations. Then, take stock of your profit/loss statement at each quarter and pay your quarterly bill accordingly. A financial advisor can help you estimate these payments if you need some help.

The bottom line is that paying taxes should be considered a year-long obligation, and not just something to visit once a year as the deadline looms. Learn from this year’s tax return to help ease your tax filing, and potentially lower what you pay to Uncle Sam, for years to come.
-
About the Author:  Nellie Akalp is the CEO of CorpNet.com, an online legal document filing service, where she helps entrepreneurs incorporate or form an LLC and offers free business compliance tools.   You can follow Nellie on twitter by clicking here.