Business taxes are no simple matter. Unlike your personal taxes, which many people handle online or with home computer based programs, there are a lot of factors that go into your business taxes. That’s why you should always work with a professional like those at Shockley Bookkeeping & Tax Services when completing your business tax services.
Of course, there are certain common decisions or errors that business owners frequently make even before their taxes reach the desks of our tax professionals. From misspelled names to failures to itemize, these 6 business tax errors may be costing you big.
Add It Up
Math problems arise frequently in the world of business tax preparation, but on the part of businesses and their tax professionals. In some cases, this means a simple problem of addition or subtraction. Even more commonly, people mistype when filling out information – and unlike a slight misspelling, switching two numbers can make a difference of thousands of dollars.
It’s also common for math problems to arise when working out factors like taxable income and withholdings. There are also different standard deductions for those over 65 than there are for younger tax filers. Incorrectly assessing any of this information can be costly, leaving you to pay money you don’t owe.
In order to be able to take all the correct deductions on your taxes, you’re going to need to keep a tax diary. Many business owners mistakenly think they can skip this step as long as they keep their receipts. Unfortunately, your expenses and your deductions are not as directly connected as many people think. In part, this is because there are certain restrictions on deductions and special rules that apply to businesses of different sizes.
If you aren’t familiar with the concept of tax diaries, you may be surprised by how costly they are. Tax diaries aren’t just notebooks where you carefully track information about your business. They are living documents filled with questions related to the tax process, including IRS questions about expenses like travel or entertainment that you may not have considered. They prepare you for filing your taxes down the line.
A good tax diary can run you more than $100, but it will save you money in the long run by making sure your taxes properly account for all aspects of your business.
Spell It Out
Although most errors on tax forms occur when someone enters incorrect numbers, a surprising number of problems are caused by names. In some cases, people simply misspell a name, but the biggest problems are caused by name changes, typically related to marriages.
Often, when women change their names after getting married, they neglect to update the IRS. This can cause a mismatch between your social security number and your name when you file your first joint tax return. Similarly, if you change your name after a divorce or for some other reason, the Social Security Administration needs to know.
Although spelling errors are less costly than other tax problems, they can delay the process, a major pitfall if you’re expecting a big tax refund. Keep your official name up to date to help smooth this process over.
It’s true that taking a lot of deductions can cause alarms to go off for the IRS, but that doesn’t mean you shouldn’t take legitimate ones. Furnishings, for example, are in fact deductible. Many business owners don’t think about deducting desks or printers when setting up shop. Especially if you do a major overhaul or are still in the early phases of setting up your business, these deductions can be substantial. Not taking them can cost you hundreds of dollars more in taxes. Small businesses should always itemize their deductions to reduce their tax load.
There are different kinds of businesses. Some are sole-proprietor operations, others are LLCs, some are incorporated, and so forth. Not only are there these kinds of operations, but the type of entity your business is registered as may change over time.
Filing as the right kind of entity is important because different entities face different tax expectations. If your revenue places you in one bracket – say an LLC, instead of a sole-proprietor organization – then you could end up paying hundreds or thousands of dollars more in taxes than you truly owe.
You can discuss how your income level correlates with what type of business entity you are with your tax professional. They will have all the information you need to make sure you’re filing in the correct entity category.
Know Thy Self
Are you technically self-employed? Failing to pay self-employment taxes in accordance with IRS expectations – which involve quarterly payments at a high tax rate – can result in tax penalties. Just like incorrectly calculating employee withholdings can impact your tax payments, failing to correctly pay your own taxes when you’re the employee is a common mistake.
Furthermore, depending on what kind of business you run, how you are paid matters. Some self-employed individuals are contractors who work at a set rate. Others who actually run small businesses in which they are employed may determine their own salary. But overpaying yourself as a business owner may not be legal. Your income is not in fact an arbitrary factor and the IRS will penalize you if you claim unreasonable compensation.
Small Business Specialists
When tax time rolls around, it’s important to work with tax professionals you can trust and who know their way around small business regulations. At Shockley Bookkeeping & Tax Services, we specialize in the financial needs of small businesses. Contact us today to speak to a tax professional. We can help guide you through the filing process, reducing your costs through proper deductions and a complete understanding of tax law.
If you think it will be less expensive to file your small business taxes on your own, think again. While working with tax preparation professionals comes with a fee, the amount you’ll save through correct filing is well worth it. As tax professionals, we are trained to recognize the best filing strategies for our clients and work to make the process as stress-free as possible. Call us today – you’ll be glad you did.