Don’t Make These 5 Small Business Tax Blunders!
Disclaimer: As we are not CPAs, this is not official tax documentation and should be used only for general information. Please consult with your own official tax professional if you have any specific questions about your tax requirements.
It’s almost tax time. But don’t panic! If you’re a small business owner, you’re lucky to live in the age of the internet, where great tax advice (like this article) is right at your fingertips. Make sure you’re not making any of these small business tax mistakes.
1. Mingling Business and Personal Expenses
Intermingling your business and personal expenses can be a recipe for confusion as it makes it difficult to determine exactly what you can write off and what you cannot. For instance, you cannot deduct all your car-related expenses if you only use it for business some of the time. Instead you need to separate out business and personal use and only deduct business-related costs. Likewise, if you are a small business owner operating out of your home, you need to designate an area used only for business if you want to deduct costs associated with it. To avoid undue stress, make sure to keep your expenses for these areas separate.
2. Not Reporting All Your Income
It may seem obvious, but forgetting to report some of your income is another one of the common small business tax mistakes that can be a red flag to the IRS. Reporting even small income, is the best thing to do to avoid scrutiny by the IRS. Additionally, if you are selected for an audit, the IRS will compare your checking account to your tax returns to find any discrepancies, so it’s best to report all income up front.
3. Missing out on the Biggest Deduction for Transportation
Small business tax mistakes can also include forgetting about deductions. There are lots of items you can deduct that you might not be aware of. For instance you may know about the standard mileage deduction for business travel, but you can potentially get a larger deduction by opting to look at the exact cost of all your transportation-related costs. Both methods take documentation, and though the latter may take more work, it may also result in a larger deduction.
4. Forgetting Other Common Deductions
In addition to transportation related deductions, there are other deductions that you might not think about when tax times rolls around. As a small business owner, several in particular that may apply to you include deductions for contributions to a retirement plan, office rentals, and the Section 179 deduction, which could help you deduct as much as $1 million in expenses.
5. Not Keeping Timely, Complete Records
Record-keeping might make you want to tear your hair out, but it’s essential. Long before you have to start thinking about filing taxes, ensure you’re keeping accurate records and saving all receipts so that you can make sure you’re not missing deductions or income, and that you have proper documentation in place.
Not only is tax advice to help you avoid small business tax mistakes plentiful on the internet, but great tools for data collection (think: tracking your mileage, tracking expenses related to your home office, etc.) are just a simple free trial away. Learn more about how web forms can help you and your business this tax season.