woman looking at paperwork and laptop
All business owners should perform due diligence on the changing tax laws and keep a detailed expense record to prepare for each tax season. — Getty Images/vitapix

There are many enjoyable aspects of owning a business; but, for most, tax season isn’t one of them. It can be challenging to ensure you have everything you need to file by the April 15th deadline.

QuickBooks Payroll surveyed 600 business owners across the U.S. to find out what common problems small businesses face. The survey found that taxes are one of the top challenges faced by business owners. To help make things easier, here are three things you should know about filing your small business taxes in 2019.

Know what tax deductions you can take

Taking advantage of deductions can save your business hundreds or even thousands of dollars a year, but it can be tricky to know what you are allowed to deduct.

Here are a few business deductions you should know about:

  • Mileage: If your business requires you to do any driving, you can deduct your mileage. For the 2018 tax season, you can deduct your miles at 54.5 cents per mile (58 cents for 2019). You should keep a proper mileage log to back up your claims.
  • Startup costs: Thanks to the Small Business Jobs Act, you can deduct up to $5,000 of your startup costs the first year you’re in business. If your costs exceed $5,000, you can deduct the rest over the next 15 years.

[Read more about how the tax laws affect your business entity.]

One of the best ways to prepare for tax season is by keeping a thorough record of your expenses throughout the year.

Be aware of changes enacted by new tax law

This is the first year that taxpayers will see the full effect of the Tax Cuts and Jobs Act. Corporations will see the biggest benefit from the tax cuts, but there were some notable changes affecting small businesses as well.

One of the biggest changes is the 20% deduction for pass-through businesses. This deduction allows business owners to deduct 20% of their business income from their personal taxes.

The following businesses qualify as pass-through businesses:

  • Sole proprietorships
  • Limited liability companies (LLCs)
  • S corporations
  • Limited liability partnership (LLPs)

To qualify for the 20% tax deduction, your income must be $157,500 or less if filing alone, or $315,000 if filing jointly. However, certain professional services, like consulting and accounting, won’t qualify for the tax deductions.

Keep thorough records of your expenses

One of the best ways to prepare for tax season is by keeping a thorough record of your expenses throughout the year. This will help you stay organized and monitor the growth of your business.

Plus, if you’re going to take advantage of business-related deductions, then you’ll need to have thorough records. Having a record of money spent is proof that your deductions were legal and will help you in the event of an audit.

Only about 1% of taxpayers are audited every year but small business owners face a slightly higher risk at 2.5%. Here is a brief list of business-related documents you should be saving:

  • Receipts
  • Professional fees
  • Contractor payments
  • Insurance premiums
  • Office rent
  • A portion of your mortgage payment if you have a home office

As a small business owner, staying informed about your tax filing options will help you save money where you can and avoid legal trouble.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published April 09, 2019