A Guide to Protecting Small Business Tax Data - Page 2

By Pam Baker
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Small Business Tax Tips: Don't Email Financial Information

Security and privacy experts unanimously agree: don't communicate with your accountant by email, and do not let companies send you a 1099 or other financial information by email. Likewise, don't send 1099s and other sensitive financial information to your contactors via email. Remember, there's a reason the IRS never sends you an email. Don't let your small business send sensitive information by email, either.

"Too many small businesses share their tax information using unsecure methods like email," says David Martin, vice president of VeriFyle, an encrypted communication and file-sharing platform. "Email may be a convenient way to communicate with accountants, but it's also an easy target for hackers. You can find simple, highly secure, and affordable options for sharing information. From a security perspective—and for peace of mind—the little bit of extra effort is worth it."

The harm that comes from emailing tax information is greater than most people think.

"By filing fraudulent tax returns, identity thieves can forge not only your tax return, but the returns of your customers," says Nigel Johnson, vice-president of business development at Zix Corporation, an email encryption provider. Don't be the weak point that lets cybercriminals hack or harm your customers. That could kill your business and leave you liable to lawsuits.

small business tax tips

Save Money: Small Business Tax Provisions

Once you've secured your tax data and your communications method, it's time to actually prepare and file the return. You might find these two tax provisions useful—be sure to discuss them with your accountant.

Section 179

This provision lets business owners deduct eligible equipment purchases up to $500K, and it can be particularly helpful if you're a cash-strapped business owner.

"Section 179 applies to many things you wouldn't expect. It applies of course to machinery and appliances, but it also covers office furniture, vehicles, and non-custom software," says Priyanka Prakash, a finance specialist at FitBiz Loans, a finance and lending resource for small business owners. "It covers both purchased equipment, and in some cases, leased equipment. If you want to elect Section 179 on your taxes, you need to fill out IRS form 4562," he adds.

But this provision can help you more than you probably think.

"Say your small business spent $100,000 last year on a truck that has approximately a 10-year useful life," says Prakash. "Ordinarily, you might deduct $10,000 per year for 10 years. Assuming a 35 percent tax rate, that's a $3,500 deduction in taxes each year for 10 years. With Section 179, you can deduct the entire $100K in the tax year of purchase. Assuming a 35 percent tax rate, that's $35,000 in your pocket in one year."

Hiring Vets: The Work Opportunity Credit

You'll find another great tax break in the Hiring Vets: The Work Opportunity Credit provided that you hired a veteran, did the necessary paperwork, and met all the requirements.

"It's not a deduction, because it doesn't reduce income; it actually reduces the final tax bill, dollar-for-dollar," says Jessie Seaman, Esq., managing licensed tax professional (an attorney) at Tax Defense Network, a company that represents clients in IRS and state tax collection actions.

Ask your accountant to go over new tax provisions—or changes to existing ones—so that you can understand if you qualify for additional tax breaks. If so, you may need to provide more information to your accountant.

Small Business Tax Tips: Paying the Final Tax Bill

Having the cash on hand to pay the final tax bill can be difficult for small business owners.

"Small business owners typically pay taxes on a periodic basis and, in the meantime, they need every dime to cover their operating expenses," says Jonathan Barsade, CEO of Exactor, a sales tax software provider.

"They often use the funds they earmarked for taxes to pay for materials and to cover payroll—hoping to have enough money on hand when tax day comes," he says. "They frequently misjudge their future cash flow, which leaves them with no cash to cover the tax liability."

Most small businesses have faced that scenario at one point or another—sometimes repeatedly. The resulting fines and penalties can further cash-strap a company. So how can small business owners break that cycle?

Barsade recommends creating a separate bank account. "As money comes in, set it aside in that account so you aren't tempted to use it for other purposes," he said. "When tax day comes, you have the cash on hand to cover your liability."

You can also save money on tax filings by having all your records in order before you turn them over to your accountant. "Double check your records to make sure they're clear and understandable," said Michael Eckstein of EcksteinTaxServices. "Many accountants charge extra to fix unorganized records."

The easiest way to keep your records organized and accurate: automate your accounting as much as possible. "There is no reason for small business owners to spend more than an hour each month on all of their tax compliance needs," says Barsade. "The sooner business owners automate their accounting, the less time they need to work on their taxes. And that means more time to focus on the business."

Pam Baker has written for numerous leading publications including, Institutional Investor magazine, CIO.com, NetworkWorld, ComputerWorld, IT World, Linux World, Internet News, E-Commerce Times, LinuxInsider, CIO Today Magazine, NPTech News (nonprofits), MedTech Journal, I Six Sigma magazine, Computer Sweden, the NY Times, and Knight-Ridder/McClatchy newspapers.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

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This article was originally published on February 17, 2016
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