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It's Tax Time: Be Aware of the Five Tax Hot Spots
Over the next couple of months, building service contractors will start getting their records together in order to file their taxes. It is important for BSCs to understand what the Internal Revenue Service (IRS) typically scrutinizes on a business tax return and hopefully, avoid an audit.
Because of this, this month's Tornado Industries Business of the Business focuses on how to tackle business taxes.
"It all starts with proper documentation," says Michael Schaffer, President of Tornado Industries and a Senior Executive With Tacony Corporation's Commercial Floor Care Division. "Proper record keeping year-round is critical and helps ensure taxes are filed correctly and deductions can be proven if questioned."
Schaffer also advises that BSCs should be aware of the five "tax hot spots."
Tax hot spots are those areas the IRS puts greater emphasis on when scanning business tax returns. For a BSC and many small businesses, those often include the following:
- Unreported income. This is probably the IRS's number one item when reviewing small business tax returns at this time.
- Employee classifications. Many BSCs outsource cleaning work to independent contractors; this is fine as long as it is a proper classification and not an attempt to avoid payroll taxes.
- Home office deductions. "The IRS does not scrutinize this as much as they did years ago," says Schaffer. "However, claiming this deduction requires proper documentation."
- Large-sum miscellaneous deductions. It is always better to carefully itemize and label all deductions and expenses.
- Mingling business and personal expenses. The government may scrutinize these if they are commingled; it is always best to maintain separate bank accounts and credit cards for personal and business use.
"The various tax software programs have really made filing taxes much easier," adds Schaffer. "However, BSCs must always remember, they still must have all their records in order for these programs to work."