Updated March 12, 2018.
With Tax Day just around the corner, many small business owners have started to work on their tax returns, which includes trying to find every deduction and credit help reduce the bill. But taxes can be confusing and downright frustrating from time to time. Here, we’ll cover what you can write off on your taxes, how and when you can file a tax extension and online resources for any other tax questions you may have.
What can you write off on your taxes?
There is no one simple answer. While you can’t simply write off a small business loan, you might be able to write off what you purchase with (or without) the loan. Additionally, the interest you pay on a loan can often be deducted, too. So, let’s take a closer look.
Like we said before, business expenses that you purchase with a small business loan can be written off on your taxes. These include the following:
- Office supplies – Copy paper, paper clips, ink cartridges for your printer, envelopes, pens, etc.
- Automobile expenses – Your vehicle may be a deduction as a capital expense. The cost of fuel or mileage, insurance and repairs and upkeep are also deductions. The amount you can write off will depend on the percentage of your car’s use is dedicated to work. If 50 percent of your mileage is accumulated through work-related travel, then you can write off half your expenses for gas, car insurance, etc.
- Advertising – These expenses are related to promoting your business, such as print advertising, business cards, hosting for your business website, direct mail and more.
- Legal and professional fees – Have you spent money from a loan on consultants, accountants or attorneys? These expenses are deductible for the year in which you incur them.
- Office furniture and equipment – On your return, these expenses can be deducted in the year that they’re purchased or depreciated.
- Business entertainment and travel – If you entertain clients or prospective clients, you can deduct 50 percent of the tab. Airfare, lodging, car rental, mileage, taxis, parking, dry cleaning and other expenses related to traveling for a business purpose are also deductible.
Small business owner tax write-offs: What about interest?
The IRS does not let individuals write off interest from personal credit cards or loans. However, it’s a different story for businesses. They have deemed business interest to be a legitimate business expense, and that is tax deductible.
If you have paid interest for business credit cards or a business loan of any kind, you can deduct this amount from your taxes.
Keep in mind: You will want to have proof that the money was spent on business activities just in case you are audited.
How can you get a tax extension?
A little-known fact among business owners is that the IRS will let you file your taxes after Tax Day. However, a few hoops come with getting that extension.
Who can get a tax extension?
First, let’s start off with explaining who can get a tax extension. The good news is the IRS can be lenient when it comes to who’s eligible for a tax extension. The main requirement is that you file your request for an extension before Tax Day.
However, if any of these three factors apply to you, you may need to talk to the IRS about your situation:
- You live outside the United States.
- You are out of the country when your 6-month extension expires.
- You serve in a combat zone or a qualified hazardous duty area.
If you live outside the U.S.: If your main place of business is also outside the U.S., you get an automatic two-month extension to file your return and pay your taxes. If you are married and file a joint return, either of you can qualify for the automatic extension. Simply attach a statement to your tax return explaining why you are qualified for the automatic extension.
If you serve in a combat zone: Your deadline is automatically extended for 180 days after the last day you are in a combat zone. Get more details here.
Keep in mind: You likely qualify for a tax extension, but you must file it by April 17 this year.
Why would you want an extension?
Sometimes, life can become unorganized, and it’s difficult to pull together the necessary financial documents in time. Or maybe you’ve been ill and that’s set you off track on filing your taxes. Maybe your tax situation is extra complicated this year, and you need more time to dig up financial records. Whatever the reason, having an extra six months to get your financial documents together can come in handy and can prevent you from making mistakes by rushing the process.
A caveat to note
While you can get an extension on filing your taxes, you can’t get an extension on paying them, unfortunately. That means you have to estimate how much you owe in taxes and make a payment by April 17.
To be clear: Filing for a tax extension will not extend the time you have to pay your taxes.
In the event that you’re stressing about not being able to pay what you owe in April, consider applying to pay your tax bill in installments once you file your taxes this year. This, however, requires that you have first filed all your tax paperwork, so if you’re dragging your feet to file, don’t. Simply file your taxes on time, then apply for a payment plan.
Not sure what your estimated taxes should be? Use a tax payment worksheet or look at last year’s taxes to get an educated guess. In the event that you overpay on your estimated taxes, once you do file, you would receive a refund (and who doesn’t like getting a chunk of change?).
How to file a tax extension
Depending on your type of small business, you’ll have to file different forms to file for a tax extension. For businesses that are not run as a corporation, you’ll file Form 4868.
Fortunately, it’s a pretty short form and just requires you to provide your contact information, social security number (as well as your spouse’s) and your estimated tax payment for last year, as well as any payments you have made on last year’s taxes. The form also includes the address to file, as it varies by state.
If you run your small business as a corporation, you’ll need to file Form 7004. Fortunately, it’s also straightforward.
However, another option you have is to use a service that will handle the process for you, like TurboTax’s Easy Extension or FileLater.com. Sites like these will take the headache away from the process, freeing you up to get those taxes in shape to file.
Another benefit of using a third-party service is that you get notification of the IRS’s receipt of your extension request within 48 hours. If you apply on your own, you’ll have to wait for the U.S. mail to deliver your letter of approval.
Online resources for your tax questions
Tax time brings up a lot of complicated tax questions, especially when tax reforms are implemented. The last thing you want to do during your busy work day is take time to call an accountant or spend lots of time researching. Sometimes, the best way to get answers to your tax questions is to look for some easy online resources.
But how do you know who’s reliable? After all, there is a lot of bad info out there, and your taxes are too important to risk taking bad advice. Check out these four online recommendations for where to get good tax information.
Does the idea of spending time on the IRS website make you uncomfortable? Sure, most small business owners have no great love for the IRS, but if you have questions about taxes, there’s no better place to start than the IRS website.
The IRS is responsible for implementing the U.S. tax code in all its complexity. Pretty much any tax question or tax form can be found on the IRS website. Even if the fine print can seem overwhelming, this is still the best place to go if you have tax questions ranging from the mundane to the extreme.
Keep in mind: The IRS is not “the bad guy.” In the end, the IRS is made up of everyday people who want to do their jobs and follow the rules and get things done efficiently. So if there’s a way to make filing easier for you so they can ultimately go home five minutes early, they’ll be happy to tell you about it. Check out the IRS’s FAQ and their Help & Resources page for questions about filing, penalties, payments, refunds and more.
2. Taxpayer Advocate Service
If you feel confused by the IRS website, can’t find the answers to your specific tax question or have a complex and potentially costly tax problem that requires assistance, try checking out the IRS’s Taxpayer Advocate Service. This is an organization that is part of the IRS but also serves as a kind of internal “watchdog” to be a voice for taxpayers and protects taxpayers’ rights. The Taxpayer Advocate Service has an extensive “Get Help” section where you can get information on a wide array of tax problems and how to solve them. You can learn things like how to set up an installment agreement or payment plan for paying off unpaid taxes, how to claim various tax credits and how to interact with the IRS during an audit.
3. Social media
Do you have a favorite tax preparation software or company that you like to use each year to file your taxes? Companies like H&R Block will often answer your tax questions on Facebook and will sometimes hold events to offer informative seminars about specific tax topics. You don’t have to wait for these events, though. Just post a question, and they should get to it in no time. You can also check out online answers and articles about tax questions from H&R Block or TurboTax.
Occasionally, if you follow tax preparation companies or financial planning experts on Facebook or Twitter, you can get invited to special groups and communities that host dedicated chats or hangouts to get you on the right track. Keep an eye out for your favorite financial blogs and websites for any announcements – they are likely to host more events as tax season heats up.
4. Online forums and blogs
After a certain point, a tax FAQ just won’t do the trick. You can search and search all day long, and the answer just never comes. That’s when it’s a good idea to take your tax questions to a broader range of small business owners just like you. Chances are, your tax question is not so unique that it has never been encountered before. Surely someone out there has overcome your same tax challenges and can help you find the answers. Forums and web communities are filled with folks just like you who have tax questions and need answers fast.
Some are business-oriented, like the GoDaddy Bookkeeping Support Center while others focus more on personal taxes. Others, like the Tax Almanac, are more geared toward tax professionals but might be a good resource to help you get started on researching complex tax questions. If you’re unsure about the forum, check the credentials of the site it’s on. For instance, Outright is a respected bookkeeping solution that is now owned by GoDaddy, and the company’s website has an archive of recordings of tax-related seminars for business owners. Or you can avail yourself of the expertise of reputable tax bloggers like TaxGirl, who has been answering tax questions and covering tax news for years.
Tax day is quickly approaching, and you might have some questions or concerns as you prepare your small business’s taxes. However, there’s no need to go it alone! From write-offs to extensions to resources, we’re here to help your small business prepare for tax season.
This article contains general legal information and does not contain legal or professional tax advice. Kabbage is not a law firm; a professional tax service; or a substitute for an attorney, law firm, or professional tax service. The law is complex and changes often. For legal advice, please ask a lawyer. For tax advice, please ask a professional tax service.