The Three Biggest Tax Mistakes Made By Small Businesses
One of the most common mistakes that small businesses make when handling their taxes is not deducting startup costs properly. A business cannot deduct its startup costs until it has made its first sale. These startup costs are not deducted right away but are instead deducted over the course of 15 years. Check with the IRS to make sure that all of your expenses qualify for a deduction.
Hiding Your Income
Do not make an attempt to hide your income. It's especially important to not under-report if you are running a cash-heavy business since these are seen as being the most likely businesses to under-report their income. For example, convenience stores tend to be cash-heavy because customers are more likely to pay for gas using cash.
Not Making Quarterly Tax Payments
You may be required to make quarterly tax payments. If you do not make these payments, you will have to pay penalties unless there is a reason for not paying them. The great thing about estimated payments is that they do not place as much burden on how much you must pay at the end of the year. By making these payments throughout the year, you will owe less.
Claiming Too Many Deductions
Business owners are often tempted to claim too many deductions. It is common for personal possessions to also be used for business. For instance, you may use your car for business and also for pleasure. However, if you own several cars, you may not be able to claim all of them as a tax deduction since you will only need one car for business. It is important to avoid claiming expenses that are clearly not for business, such as pet food, groceries or clothing unless these items are somehow directly tied to your business. For instance, clothing could be deducted if it is a uniform only used for work. However, there are also many small expenses that can add up quickly and that can be claimed as a tax deduction. For instance, you may have various organizations that you are a member of that come with a monthly fee.
The larger your business becomes, the more important it is to receive legal tax advice from tax legal services. As your expenses become larger and as you hire more employees, your taxes will become more complex and the extra expense of hiring a tax consultant just makes sense.
Contact a tax law office for legal tax advice.