Dear Small Business Owner,
Does the thought of filing taxes for your small business make you instantly nervous? Or are you interested in starting your own small business but are unsure of the tax lingo and rules which seem somewhat mysterious? Are you afraid any errors on your tax return will end up costing you thousands of dollars in fees and interest? If you answered yes to any of these questions, then this article should prove useful. Of course, filing small business taxes is no easy task, but this article will provide a brief overview of some of the most common tax filing mistakes that small business owners make.
Some of the most common tax mistakes made by small business owners include not keeping accurate records, mixing personal and business expenses, failure to report all taxable income, not keeping abreast of tax scams and not staying well informed of upcoming tax laws, and filing an inaccurate tax return. The world of income tax returns doesn’t have to be scary and intimidating. Hopefully, this article will point you in the right direction and get you moving toward your goals as a small business owner.
Why is it important to maintain accurate records before filing small business taxes?
There are several reasons. First, maintaining good business records will help ensure you don’t miss out on any important tax deductions. Second, good record keeping is also beneficial because doing so makes returns easier to digest and go through in the future should the need arise. Third, properly maintaining such records will help you better prepare for the up coming tax years by giving you the foresight needed to hold on to receipts and other important paperwork for the years to come. Finally, it can save you a lot of headache if the Internal Revenue Service ever decides to audit your tax return; of which you should maintain a copy for at least seven years.
So you mix your personal and small business tax deductions together. What’s the big deal?
Mixing personal and business tax deductions together is a huge deal to the Internal Revenue Service. Business owners are warned to avoid the temptation of counting personal miles on a business vehicle, deducting home office expenses which are not really for business use, and including personal meals in business deductions. While all of these slip ups seem harmless, they are not and can really add up to trouble for the small business owner from the Internal Revenue Service. Be sure and speak with your tax professional regarding potential tax deductions, especially those which might be a little close to home. Saving a few dollars by listing home expenses as business expenses will only end up costing you in the long run.
Failure to report all taxable income
This is a big mistake that can cost tax payers a lot. While this category could also at least partially fall under maintaining accurate records, it is important enough to list separately. This is because that while forgetting to maintain a business receipt is one thing, not including business income is entirely different. In other words, if you miss out on a deduction it is your loss, but if you fail to report income, then you may owe the IRS back taxes and penalties as well. Some examples of taxable income which may not immediately come to mind are extra tips, services received, and items which you are given. To further explain, don’t forget to include any monies received for good work, difficult jobs, etc., as these, no matter how seemingly minuscule, matter to the IRS. Services received may also include services, or items, received through bartering. Bartering is known as trading goods and/or services for anything of value other than money. Bartering is therefore something you are given in return for services rendered Let’s say that you have a lawn mowing service and one particular customer was pleased with your work but short a few bucks on the bill, so he paid what could in cash but also gave your business an old lawn mower that was just sitting around his garage. You would need to count this as taxable income. Also don’t forget about earnings which are obviously considered taxable income. Failure to report all earnings can result in harsh IRS penalties.
Not staying abreast of tax scams and not being well informed
This is your income tax specialist or certified public accountant’s problem right? Wrong. It is your job as a small business owner to maintain a certain level of understanding of present and future tax laws and to ensure you select a tax professional who is legitimate and knowledgeable. No you don’t have to become a tax professional yourself but you do need to stay up to speed on new laws, etc. which might impact your small business tax returns and since when it comes down to it, you are responsible for your income tax return, then you must select the right professional. It is always beneficial to do your research. Local and national news stations often broadcast up-to-date information regarding tax refund scams so wise consumers might take heed of potential scams and as always, don’t forget to protect your identity especially regarding your tax return information.
Finally, filing an incorrect return is sure to cause trouble for small business owners. There are several common mistakes consumers make filing their taxes and small business owners are not exempt. Forgetting to sign your return is one such issue. It sounds simple but don’t forget to sign on the dotted line! Signing your tax return is such an easy way to ensure your return is processed in a timely manner and that you receive your refund as well. Whether you use a certified professional accountant or a do-it-yourself tax filing program, you should have a few different options for processing your documents. Tax returns may be processed by United States Mail or electronically through e-filing. It’s crucial to verify the propers signatures are on the returns before sending through the mail or you could experience major delays. Ensure you mail documents to the proper address as well as including sufficient postage. Electronic filing, if done correctly can seriously expedite the entire process. Tax payers may receive their refunds within six to eight weeks if they file electronically and no mistakes are noted.
If you’ve enjoyed this article so far, please continue reading for other points of interest such as small business write offs, how to file taxes for small business, small business health insurance tax credit, business startup tax deductions, and business expenses deduction(s).
Small business write offs. Being a small business owner is difficult. You more than likely work tons of hours; way more than you would if you were employed by someone else, had to wait years to see any capital gains, and must budget to maintain profit over loss but while there are many difficulties, there are also several positive aspects as well. One of these aspects is the small business write off. Small business owners can reap this tax benefit whenever you have expenses which the Internal Revenue Service deems eligible for a tax write off. As mentioned before, office space and mileage are two possibilities while insurance premiums and retirement contributions are often missed opportunities. While these write-offs are potential money savers, don’t forget to make sure you deduct within the lines of IRS guidelines.
Small Business Health Insurance Tax Credit. Don’t forget that some small business owners may be eligible for a health insurance tax credit. Employers earning less than $50,000 per year and who pay 50% of their employee’s health insurance premiums may be eligible. Be sure to ask your tax professional about this sometimes overlooked tax credit and don’t forget the old adage “You don’t get what you don’t ask for”.
Business Start Up Tax Deductions. If you are reading this article as part of your research to determine whether or not small business ownership is for you but you aren’t sure the capital is there, take heart in learning about this next small business trinket. Small business owners may be eligible for a business start up tax deduction. This Internal Revenue Service deduction is specifically for new businesses with start up costs of less than $50,000. Eligible entrepreneurs may receive a tax deduction up to $5,000. Please talk to your CPA to take advantage of these money saving deductions.
Business expense deductions. As mentioned before, owning your own business can be expensive however, there are a world of deductions that can make the business of owning a small business easier. Itemized deductions can include office space, office furniture and supplies, mileage and even vehicles, cellular phones, meals, training, health insurance expenses, and many other deductions. Be sure to maintain files including the receipts for the above mentioned items. They will need to stay with your copy of your income tax records for around seven years.
How to file taxes for small business. Here’s to hoping this article has given you, the small business owner the tools you need on how to file taxes for small businesses along with some ideas, warnings, and thoughts regarding filing your taxes. Remember, maintaining proper records, staying in the know about changes to tax laws, choosing the right representative to file your return, ensuring the finished product is completed accurately, timely, and sent to the right place, and finally, that you maximize your deductions without going overboard! So, filing the taxes for your small business doesn’t have to be scary. Don’t forget to pay attention to the seemingly small details that can end up costing you in the end. Make sure to count everything. Count all taxable income as well as count all possible deductions. Be sure to get what refund is owed to you without stretching the lines of imagination. In other words, do not falsify important tax documents by mixing business with pleasure. It’s just not worth it. Please do your homework with regards to income taxes and find a professional who is just that, a professional. Your tax return should tell the whole truth and nothing but the truth so to speak and be sure it is complete before submitting. Following these simple yet hard and fast tax rules will save you a lot of headache and potentially a lot of money in the end. Good luck in your future business endeavors and happy tax filing!
Finally, if you have additional questions be sure to contact those who are there to help. Your Certified Professional Accountant will be able to answer your questions. The Internal Revenue Service is also available to answer tax related questions. Check out their website at www.irs.gov. They also have a myriad of videos which are short and to the point but offer plenty of useful advice. The site also includes a frequently asked question section which offers a lot of important information as well. These FAQ’s are a short read. It might be good to check with other, more seasoned small business owners. They will probably have some good tips and advice for younger entrepreneurs. The internet can also be a good resource. There is a multitude of youtube videos, just make sure the authors are credible. If you don’t have access to the internet then check with your local library. It will have plenty of books on tax laws ranging in skill level from novice to tax professional.