When filing as a small business for the first time or the fifth, it’s common to become overwhelmed with the many facets of the process, or even skip steps. Filing your business taxes is the most important task in keeping your business in line financially; read below for specific mistakes often made to avoid blunders that could cost your business. With these in-the-know tools, you will ensure your business files correctly while utilizing and leveraging the best return. You’ll keep your company thriving.
Short business lunches, one-off workshops, and simple supplies might phase your wallet much, but the expenses add up. These are small, but valuable tools that keep your business functioning on a day to day basis and certainly count as deductible expenses. Account for each and every cost on a spreadsheet or any recording tool you choose, and it will pay off come tax season.
Keeping track of any and all expenses is essential. What falls into the deductible category can be confusing, so err on the side of caution. Confused about car deductibles? Understand the rules here. The last thing you want do is exaggerate your expenses, either by rounding up the costs of items or including ones that simply don’t apply, as this can trigger a red flag to the IRS. An audit with a negative outcome is exactly what you are trying to avoid.
Although your main goal is to file appropriately with the IRS, you have several other tax obligations as a business owner. This includes but is not limited to property, local taxes, payroll, and self-employment taxes – it can pile up and get overwhelming quickly. Ensure you are keeping track of all due dates and securing appropriate documentation in a safe place when it comes time to file.
Separating personal and business accounts will simplify and streamline identifying income and expenses. If you have a home-based business, this still stands. Multiple accounts for different intended purposes will allow you to properly expense your home office deduction.
Failure to comply with payroll taxes is all too common – approximately 40% of small businesses incur an average of $845 in penalties from the IRS. To avoid hassle and unnecessary fees, outsource a payroll company to properly deposit payroll taxes.
Another fairly common mistake that will cost you is failing to update your records as a small business. This is especially detrimental because you miss opportunities to reduce your taxable income. You should not only track expenses, but keep documentation in the form of receipts to support your claims. Consider this good bookkeeping, but it’s also a requirement by the IRS. As you see your business growing, you may want to invest in an accounting software. Utilize a program to take a weekly peek at your account, including cash flow, all transactions, receivable, and payable.
An accounting program may not be enough for your small business’s records and financial complexities, especially if you’re running a tight ship. An accountant or tax specialist will be helpful every step of the way – someone who has IRS training and is licensed to advise your tax preparation and filing will be worth every penny.
Avoiding these mistakes will not only be pertinent to filing your taxes correctly, but also a larger achievements: reducing your taxable income, expensing all that you can accurately, and keeping your business financially sound.