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Thursday, May 31, 2007

Tax Time Tune-Up

Developing healthy accounting practices throughout the year will save you when tax season begins

Money-Saving Habits

Kate Callaway, a staff accountant for the Studio Management Services group at the Professional Photographers of America, says that sometimes it's those subtle, routine housekeeping tasks that ultimately will save you from paying costly penalties.

Callaway advises to pay sales and employment taxes promptly. If you don't know how to calculate those taxes, find someone to do it for you or research some of the software programs designed for that very task. Lesko, the Los Angeles-based photographer, is also the creator of Blinkbid software, an estimate and invoicing program for creative pros that calculates sales tax and potential profit from a job. MYOB, QuickBooks and other accounting software programs feature tools for managing payroll.

Says Callaway, “People put off paying their employee payroll taxes until the end of the year rather than paying them monthly, and then the IRS slams them with huge penalties. Keep up with it. Don't get behind.”

Also, she says, reduce your tax liability by lowering your taxable income as much as possible. Pay whatever expenses you can before the year ends, such as buying an expensive piece of equipment. And don't forget to pay yourself a reasonable wage. You're providing a service, and if the IRS sees that you've given yourself no salary, but that you've distributed $100,000 to yourself, it sees that as a wage and taxes it.

The bottom line: Staying proactive throughout the year will lessen your stress level once crunch time hits. So don't delay, because opening up an offshore account and avoiding the system entirely just isn't an option.

 

Quick Tax Tips Keep up with the books. Track all of your expenses regularly and keep them organized using an automated accounting system. Don't mix money. Maintain separate accounts for business and personal funds. Get help! Find a tax expert to prepare your returns and keep you aware of changes in the tax code. Maximize deductions. With or without an accountant or tax attorney, know how, when and why to write off expenses related to your business. Stay diligent. Don't let routine tasks, like not paying sales tax, cost you. Start planning now. It isn't too early to start thinking about 2007.