In the United States, small businesses employ 59 million people. Taxes contribute to the government’s budget, whether you’re a small or large corporation.
Tax season can be difficult and cost you more than necessary if you’re not careful. Read this guide on the common tax planning mistakes businesses make and how to avoid them today!
Improperly Deducting Start-up Costs
In tax deductions for businesses, it’s common to overestimate how much is deductible. You can’t deduct all your startup expenses immediately.
Once you make a sale, expenses are deducted over 15 years. The IRS allows deductions up to a certain amount for the first year, depending on your salary.
An experienced tax professional will tell you to wait on startup deductions until the second or third year. This will also depend on finances.
Mixing Business and Personal Expenses
When saving for taxes, you must keep your business account separate from your personal. Mixing this could wind up being a red flag to the IRS. It can make it difficult to tell business expenses from personal.
Never deduct expenses that aren’t related to your business. But your home office does count as a deduction. You can also deduct tolls, property taxes, and interest on auto loans.
Not Keeping Receipts
You might receive an audit on your return if your claim seems too high. You’ll need to provide receipts as proof of expenses.
- What you bought
- The vendor
- The amount
- The date of the expense
Bank and credit card statements don’t always tell this information. The receipt will clearly state what you bought while at the store and whether it’s tax deductible.
Depositing Employment Taxes
You’ll need to deposit the taxes they withheld if you have employees, plus your share of the taxes. If it’s not deposited properly, you might receive a penalty.
The IRS uses a computer to match what reports they receive. This includes estimated tax payments.
You might have your income reported through a 1099-MISC. A 1099-MISC will also list non-employee compensation.
1099s will also include investment accounts. Avoid placing income in the wrong place. Doing so could be a red flag to the IRS.
Not Tax Planning
Work with a tax professional to get the planning process started. Don’t treat it like record keeping where you only use information from last year.
Working with a tax professional could help decrease stress and ensure everything is done correctly. You’ll also be able to save money and not have to worry about penalties.
Common Tax Planning Mistakes Businesses Make
This guide should give you a better understanding of tax planning mistakes you could encounter. To avoid these, it’s best to work with a tax professional who can guide you along the way.
Are you ready to get started with tax planning services? Schedule your free tax assessment today! You’ll learn how to save on taxes with help from our Florida CPAs.
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