Avoid These 7 Tax Mistakes With Your Small Business
When you have a small business, you tend to spend most of your time and energy actually running it. It can be easy to lose track of the details but small things can end up costing you money, especially when it comes to tax time. Here are some mistakes that are frequently made and can be avoided.
You can deduct expenses for the start-up of your business but not until you’ve actually made some income from it. As with all expenses, it’s important to save every receipt so that your accountant can determine what is admissible and when. This will partially depend on your gross annual income.
It is a common mistake for a small business to classify employees as independent contractors when they are actually legally being treated as employees. If the person is working 100% of their time for you and you control where and when they work, then they should likely be considered as employees. Therefore, you will owe payroll taxes.
Make sure you know what is appropriate to deduct in terms of mileage. You also may be able to include, at least partially, expenses for gas, insurance, tires, parking, and leases. The key here is to keep excellent records as to where and how far you are driving, and for what purpose.
In addition to expenses for your auto, there are other areas that are commonly missed when it comes to deductions, such as depreciation on equipment. Other items can be dependent on the industry that your small business is in.
Deducting too many expenses can throw up a red flag with the IRS. One area that a mistake is often made in is meals when traveling or taking clients out. In some cases, an owner tries to include costs that are obviously personal. It’s a good idea to keep separate accounts for business and personal use so that the line is clearly drawn.
Not Making Quarterly Tax Payments
Depending on how much you expect to owe, you may need to make quarterly estimated tax payments. If you don’t make them when you should, you will be liable to pay a penalty.
Not Having Enough Cash To Pay Taxes
One of the worst mistakes you can make is not paying your taxes on time. With a small business, you are often so worried about paying the day-to-day bills, you put off worrying about taxes until it’s too late. Consider creating an account solely for taxes and set aside what you will need to pay as the income is accrued.