If you’re like a lot of small business owners, your focus is on growing your business and making customers happy. It’s probably not on your small business taxes. And this can be an expensive mistake, which can result in overpaying your taxes, incurring a tax penalty, or triggering a tax audit by the IRS. All bad outcomes.
To avoid these dangers, you need to bring your A game at tax time. Here are some of the main pitfalls you should avoid when preparing to file your return.
Don’t Make Business Personal
As a small business owner, there often doesn’t seem to be a separation between your work and personal life. But there needs to be, especially when it comes to the expenses you deduct. For example, not all dining and entertainment expense are deductible. The cost of your work commute isn’t a write-off. And business tax laws get complicated when applied to business travel.
On the other hand, your home office can be a deduction, and you can write off vehicle expenses for business travel, but only 54 cents per business mile.
If you collect sales tax on goods, don’t make the mistake of including the sales tax in your reported income. Your sales, without sales tax is the figure you need to supply.
Incorrect Deductions of Startup Costs
Many new business owners are under the false impression that they can deduct all startup costs right off the bat. Not true. To begin, you have to make a sale, and then your startup costs are deducted over the next 15 years.
There is an exception, however. For your small business taxes, you can have up to $10,000 in deductions from startup costs in your first year if your total expenses did not exceed $50,000. If they did but were less than $55,000, you can still receive a deduction, but reduced by the dollar amount over $50,000.
Not Filing or Paying on Time
As a small business owner, you’re very busy and sometimes filing or paying taxes can get lost in the rush. If you miss the deadline, then you should turn to the help of a professional tax preparation service to make things right with the IRS.
But keep in mind, there are separate penalties for failing to file and failing to pay. And the penalties for failing to file tend to be greater. So even if you cannot afford to pay your taxes at the moment, you should at least file them.
You can also apply for an extension by submitting the necessary form.
Not Keeping Records in Good Order
If you don’t keep accurate and complete records, then you may miss out on legitimate write-offs. Or, worse, you may be disallowed deductions you’ve applied for because you don’t have the correct paperwork to back them up. Make sure you save receipts, invoices and other documents that demonstrate income and expenses.
Incorrectly Classifying Staff
It’s common for companies to misclassify staff in their small business taxes. You might, for example, hire independent contractors, partly because you expect to save money during tax season. However, if they are supposed to work certain hours or on-site, then they may be classified as regular employees.
Simplify Your Small Business Taxes
If you need help with your small business taxes, turn to the proven professionals of Shockley Bookkeeping & Tax Services. We have helped hundreds of small businesses of all types and trades in and around Broken Arrow, Oklahoma with their quarterly tax payments, preparing and filing annual returns, and tax-planning advice.
With so many tax laws and rules that affect small businesses, it’s nearly impossible for business owners to keep up with them all. At Shockley Books, we use our 25 years of combined tax experience to keep you up-to-date on the tax regulations, so you can make the best financial decisions for your business.
Contact us today for a free consultation and quote, to get started on a tax plan that will save you time and money.