Villa now turns her attention to helping small business
owners prepare their 2008 taxes during a severe recession.
In the following Q&A, Villa gives her take on some of the
possible ways these business owners can help their tax
situation when filing.
As new business owners work to prepare their 2008 taxes,
what new changes do they need to keep in mind?
So many small businesses have suffered financial losses due
to the economy. How will this factor in to how they prepare
their taxes for 2008?
If your business suffered financial losses, both your
overall business and personal taxable income will be
reduced. Make sure you have your year-end statements from
investment brokers that clearly reflect these losses. For
small businesses suffering a net operating loss, remember to
opt to carry it forward to 2009.
How can accounting software help entrepreneurs who have
previously relied on handwritten ledgers or “homemade”
accounting on their computer?
Accounting software, if utilized correctly, helps you “see
everything at a glance.” Handwritten ledgers help you keep
track, but don’t produce the reports you need. Thus, every
time you make a change or a month passes, you need to
re-create your profit and loss statement. Accounting systems
can generate that for you in two “clicks.” This is very
important when you want to keep an eye on your business.
What are the big red flags that will attract the attention
of the IRS?
For Businesses: A net operating loss three years in a row is
a red flag because the IRS would then consider your company
to be a hobby rather than a business. Also, excessive meal
and entertainment expenses, excessive travel expenses (when
a business is in a category that does not require high
levels of travel) and non-matching inventory and balance
sheet reconciliations are also red flags.
For Individuals: Some of the red flags include claiming a
dependant who you did not claim the year before, reporting a
large amount of medical expenses and inappropriately
claiming the EIC credit in previous years.
How can businesses analyze their tax returns to make changes
that can improve their bottom line for 2009?
Calculating percentages is important. Make sure your total
annual expenses are not too large a percentage of your
overall income and make adjustments as necessary. For
example, if advertising is consuming 50% of your income,
then it is probably too high. Use your tax return to analyze
percentages and create next year’s budget.
Author: Andy Quayle
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