In sympathy with the recent passing of Blue Monday, Cougar Mountain Software would like to present 5 “Must Ask” questions that will ease the pain and stress of tax season. After all…the more you know, the more you know. Content may be more relevant for small-to-medium sized businesses than larger corporations.

1. Does the IRS offer extra-credit for creative write-off deductions?

Kind of. The write-offs we’re all familiar with are expenditures like business travel, office equipment, salaries, and rent. But other write-offs are often overlooked or undiscovered. For example if a business incurs a loss for the year, that amount may be deducted against the business owner’s personal income resulting in a significant tax break. And if the losses exceed his/her annual income entirely, you can qualify for a tax umbrella to help shield your income in future years. Bonus round: combining business and pleasure is a legitimate, even encouraged, practice. If more than half of a personal trip is devoted to business, you can deduct the travel costs and other business-related expenses.

2. How do lump sums lead to taking lumps?

We get it. Taxes are difficult enough once a year, let alone once every 3 months. But if you fail to keep up with quarterly estimated taxes you’ll likely get slapped with IRS penalties and may experience cash flow problems as you struggle to maintain healthy finances. If your total tax bill in a given year will exceed $500, you should probably pay quarterly estimated taxes. By the end of the year you’ll be on the hook for either 90% of the tax you owe or 100% of last year’s tax (110% if your gross income exceeds $150,000).

3. What don’t you know about sales tax?

Most services are exempt from sales tax. Most products are taxable. As the vendor responsible for taxable wares, you are legally obligated to register that inventory with your state’s tax authority. All sales, taxable AND nontaxable, must be tracked and included on a company’s sales tax return. Little known fact: if you sell items via internet or catalog to a state that your business doesn’t physically reside in, you may be vulnerable to that state’s “use tax,” but not their sales tax. Try to figure out your sales tax responsibilities in every state that you do business before the IRS does it for you.

4. Does charity give back?

Yes. In the form of maximum tax benefits IF

1. The charities you contribute to are on the list of qualified organizations registered with the IRS.
2. You obtain a letter of receipt for donations over $250 (a canceled check is sufficient for donations under $250).
3. Remember that the value of time or services you volunteer, contributions already written off as a depreciated asset, or giving money to a “charity” that benefits you CANNOT BE WRITTEN OFF.

5. Loans and income are different beasts. Right?

An exception to the business-loans-are-not-considered-income rule, is when you negotiate with a creditor or lender to reduce your debt. NOTE: forgiven debt can (and will) be taxed. The silver lining is that business loans offer substantial tax benefits, so the principal and interest you pay here can be deducted as a business expense. If you are transparent about the total amount of the loan — and can prove that the assets and expenditures being financed by that loan are a necessity for the operation of your business — you’ll qualify for a tax deduction.

Accurately recording one’s taxes is a civic duty, but it’s just as important that businesses leverage all possible deductions (and Denali accounting software makes it easy). Before acting on any of these tips, please check with your tax accountant or consultant to determine the validity and/or potency of these “loopholes” as they relate to your holdings. Still have questions? The IRS might be speaking your language.

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