When first-time business owner Art Rutledge opened Vice, a liquor store on the ground floor of downtown's Legacy at Arts Quarter apartments in October, paying his taxes was one of the last things on his mind.
“I wish I would have been thinking ahead when I first opened,” Rutledge said. “When you start your own business, nobody is telling you to set so much money aside for taxes — you're used to having somebody else do that for you.”
While Rutledge hasn't sat down to file his taxes for the first time as a business owner, he has sought out a CPA to help and has asked for advice from the Small Business Administration's Oklahoma City office. He's also started setting aside about 30 percent of his profits for taxes.
Diana Rawdon, regional manager of branch business banking for Bank of Oklahoma, said getting the help of a tax professional is one of the most important things a small-business owner can do to make sure they navigate tax season successfully.
Rawdon oversees a team of business experts at Bank of Oklahoma branches who often field tax questions from small-business owners.
“Small-business owners are typically experts in their field, but might not be accounting experts,” Rawdon said. “You need to have a good accountant or CPA that will really look at your needs.”
Good record keeping and keeping business and personal expenses separate are vital to ensuring a headache-free tax filing, Rawdon said.
“We recommend keeping business and personal expenses separate — even if you are really small,” Rawdon said.
Mixing business and personal expenses can cause problems if a business faces an IRS audit, said Larry Weatherford, public affairs specialist for the Small Business Administration's Oklahoma City office.
“You need to make sure you have good records and notes so you can prove that something is a business expense versus a personal expense,” Weatherford said.
Classifying workers as independent contractors instead of employees to avoid payroll taxes is another audit trap that small businesses often stumble into, he said.
“It's important to understand the difference between an independent contractor and an employee that is under your direction to avoid that problem,” Weatherford said.
Small businesses should also look into what tax credits are available to them, Weatherford said.
For example, small businesses can use a tax credit for 2012 that is part of the Affordable Care act to cover up to 35 percent of worker health care costs, he said. The tax credit increases to up to 50 percent of costs in 2014.
Small businesses can find more tax help at www.irs.gov/Businesses/Small-Businesses-&-Self-Employed