Tax Mistakes for Small Businesses to Avoid
With new tax laws in place, here's everything you need to know this season
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These two words that can lead to stress and uneasiness for small business owners and entrepreneurs, but that doesn’t have to be the case.
Below are some of the most common tax mistakes and how to prevent and avoid them. With the right tools and proper preparation, taxes don’t have to be daunting.
Mixing Business and Personal
This can be avoided by opening a separate banking account and obtaining credit cards specifically for your business. This will prove particularly helpful during tax season as it keeps all business cash flow in one place. If, for example, your business is a corporation, it should be viewed as a separate entity in order to protect your personal assets.
The IRS knows its stuff and has compiled data based off of average expenses from company size and specialty. The three most heavily reviewed deductions are — home office deductions, car expenses and travel and entertainment expenses. It is important to keep proof, such as receipts, when claiming large deductibles.
The above being said, there are likely some deductibles you might be missing out on. Small business deductions can include startup costs of $5,000 in the first year and equal amounts for the next 15 years, business services such as internet, interest on personal loans and credit cards, inventory or continued education, if it’s relevant to your business.
Filing anything late is not ideal, but it’s especially detrimental where taxes are concerned. It is highly advised that you file all tax returns that are due no matter if you can pay in full or not because installment plans are available. Penalties for filing late or not at all will continue to compound.
Bottom line, you need a process in place. Find a system of keeping accurate and timely records that works best for your company. While paperless is beneficial in many ways, it is always advised that you keep and file physical receipts, check and documents you receive. It is imperative that you are reconciling your accounting statements on a regular basis.
Not Working with a Professional
As a small business, entrepreneur or start-up business, you should seek the assistance of an expert. Nearly all tax mistakes can be prevented by enlisting a professional. Each state is required to have a directory of active CPAs in order to find the best fit for you. Finding a certified professional is just like hiring an employee — they should be trustworthy, honest, qualified and professional.