Tax Preparation: Common Mistakes Small Business Owners Make and How to Avoid Them
Tax Preparation for Small Businesses
Tax season always instills some level of panic in business owners, which leads to costly mistakes. Many times, this means that deductions are missed, documentation gets confusing, and this ends up costing your business money. To help you avoid costly mistakes this tax season, here are some common tax preparation mistakes, and advice on how to avoid them.
Startup Expense Claiming
If you are the owner of a new business, you can write off some of your startup expenses. This deduction can be crucial to your tax preparations for the first year of business, as it can mitigate some of the cost of the start up itself.
Business Driving Deduction
Many small business owners are unsure of what counts for a business driving deduction. Business driving is whenever you travel for your business, such as leaving your office to see a customer or pick up shipment. While the commute from your home to your office is a personal expense, in the case of a home office or a business trip that requires a long period of driving from the home or office location for business purposes can be treated as a tax-deductible expense but should only be claimed while keeping the proper home and business tax filing separate. Also keep in mind that the deductions do not stop at mileage, as in some cases you can claim gas, oil, and other car costs, such as insurance and tolls on your taxes.
Small costs like magazines, education classes, and more can add up quickly for your business. Proper tracking of your business expenses can come in handy when preparing for tax season. Talk with your tax adviser to find out if these small expenses count towards your deductions.
The Perils of Deduction Exaggeration
Working with an accountant on your tax preparation can help make sure you don’t exaggerate your deductions, which could cause an IRS audit. Simple mistakes, such as deducting 100% of meal costs for traveling expenses, can cause issues and raise suspicion in the IRS.
It is also important to keep accurate track of your other tax expenditures, such as property, payroll, local, excise, and self-employment taxes. Even though these taxes are not technically filed through the IRS, they can still affect your business and should be reported accurately. Keeping track of payroll taxes by outsourcing to a payroll company, for example, can help ease your yearly tax preparation and help you avoid costly fees.
Making sure your records are up to date and include the proper receipts and documentation can help you save money and avoid costly mistakes when filing taxes.
To find more advice on tax preparation and deductibles for small businesses, visit Ironhorse. With information on tax filing, businesses expense management, and a whole range of small business guides, Ironhorse can help take the mystery out of running a small business.