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Top 3 Mistakes Small Business Owners Make When Filing Taxes
The start of the new year is also the start of the tax season in the US. It is a stressful time for most business owners because they need to gather all the data they have, prepare their reports, and ensure that they submit every tax document on time. That is apart from the daily operations their business needs to perform.
Before you end up with a financial nightmare during this busy season, you should learn about the common tax mistakes that small businesses commit so you will know what to avoid.
Mistake 1: Not keeping track of everything
One of the most time-consuming and stressful tasks that most business owners face during the tax season is putting all their invoices and receipts into order. Ideally, when you make a sale, you should put it on record right away. However, that is impossible to do if you have customers waiting in line or have other tasks you need to attend to.
One way to deal with this is by utilizing a digital accounting tool that can help speed up the process. Nowadays, some programs have a receipt capture feature that can automatically record the information from your receipts by scanning them. You also need safe online storage that will keep every receipt and invoice in place. Make sure to allot time daily to process and document all of your transactions. That way, you will have fewer troubles later.
Mistake 2: Claiming all of your startup expenses
Every small business can write off their initial business expenses to lower their tax bill. However, you should note that not all costs are deductible and that there is a limit to how much you can claim.
The International Revenue Service (IRS) allows tax deductions but with limitations. For example, during the startup phase, business expenses are capped at a $5,000 deduction in the first year, but the business expense must have a total cost of $50,000 or less. Any amount beyond the total cost limit can be amortized over 15 years, starting in the second year of your business operation.
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Mistake 3: Not knowing about tax deduction limitations
Although there are operation deductions you claim, you should be mindful of what you list and all other limitations that the deduction rules state. For example, only 50 percent of the total expenses spent on business meals can be deducted, and they must be related to the business and must have proper documentation. You should also meet the conditions that the IRS set before you can reimburse your work-related travel expenses.
Do not even consider breaking the deduction rules, as the authorities will find out eventually. If you are honest and clear from the start, you will have a smoother tax season.
Conclusion
If you do not want to prompt an audit from the IRS or delay a return, you shall do your taxes the correct way. By doing so, you can eliminate the stress associated with the tax season. Also, by implementing the best practices as early as now, you will know how to avoid penalties or potential tax evasion charges in the future.
Do you need small business accounting services to help you deal with the tax season? At FiBrick, we offer tailored solutions to our clients. If a business accountant is what you need, we can provide you with one. We can help simplify your cash flow management and can take care of your tax concerns. Contact us today to learn more about our services.
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