12 Aug 8 Tax Mistakes To Avoid For Your Small Business
April 15th comes around quickly every year. We understand how stressful it can be, and have some tips on how to reduce mistakes.
These are the most common tax mistakes we see from small businesses in Chattanooga.
Don’t forget to write off start up-costs
When you first open your business, you can write off the expenses you incur. These include expenses prior to opening the doors! This is a great deduction that you will want to take!
Some business owners ask for clarification as to what counts for business driving deductions. Barbara Weltman helps provide some clarity in her blog “Driving for Business.” What is business driving? “When you travel from your office to see a customer or vendor, this constitutes business driving. Whether travel from your home to another location is a business trip depends. If you commute from home to your office (and back), this is a nondeductible personal expense. If, however, you work from a home office for which you claim a tax deduction, then travel from home to any business location (and back) is treated as deductible business driving.”
The mileage deduction in 2014 was 56 cents per mile. 2016 rates will be published in December.
Mileage isn’t the only expense you can deduct in regards to your vehicle. Gas, tires, insurance, tolls, parking, and other expenses can also be deducted if you can prove that they are in fact a business expense.
The Small Stuff Adds Up
Classes, petty cash purchases, and other expenses add up. Don’t forget to keep your receipts for these expenses. Double check with your tax advisor about expenses you plan to deduct.
Don’t Overdo It
Having an accountant is beneficial in many ways. They will ensure you aren’t exaggerating your deductions. Doing so can increase your risk for an IRS audit. Some business owners instinctively deduct 100% of business meals while traveling- however, these expenses are only partially deductible.
You of course want to deduct all business expenses, but keeping them to an industry appropriate level is important.
The IRS Isn’t All
As a small business owner, you have many tax obligations. Of course you have the IRS, but others include property taxes, payroll taxes, self-employment tax, and others. Keeping up with all of these in a timely fashion is important and can carry a harsh penalty if you do not do so. Having a tax professional to help ensure you meet necessary deadlines is very important for any business.
Keep Business & Personal Separate
To avoid confusion at tax time, keep your business and personal banking accounts separate. It can be hard to sort out a year worth of charges if you don’t practice this rule. Another thing to keep separate is your home office if you plan to claim a home office.
Pay Your Payroll Taxes
This is something that a lot of small business owners struggle with. The consequences of not paying them are substantial. It is estimated that 40% of small business pay on average $845 in penalties for failing to do so. Do yourself a favor, and stay in front of these taxes! Outsourcing your payroll is one way to ensure this is done properly and in a timely manner.
Maintain Accurate Records
This is a very important part when tax time comes around. Keep accurate records of all business expenses (including receipts) to ensure you can maximize your tax deductions. Tax software (such as Quickbooks) will allow you to do this easily. Take time regularly to check all accounts to ensure you have the proper documentation.