The Top 3 Tax Mistakes of Small Business Owners
Source Credit: smallbusiness.aol.com
Small business owners are some of the busiest people on the face of the planet. Between managing inventory, hiring employees, marketing and, of course, selling their products, it can be quite easy for them to overlook some critical practices when it comes to handling their taxes.
Here are the top three most common tax mistakes small business owners make and ways to help you avoid them.
1. Overlooking Tax Deductions
This might seem like an easy mistake to avoid but you would be surprised at how many small business owners actually miss out on valid tax deductions simply because they are not informed. Virtually any cost a business incurs as a result of its effort to earn a profit is tax deductible. As long as the purchases are “ordinary and necessary” for the continuation of your business, the IRS will most likely accept the deductions. A comprehensive list of what can and cannot be deducted can be found on www.taxreceipts.com.
2. Neglecting Bookkeeping Until Tax Time
Even if you have an accountant who does a great job of helping your company prepare its taxes, this doesn’t mean you should completely forget about your finances. All small businesses should have a system in place that routinely tracks and categorizes their income as well as their expenses in a way that makes sense. Additionally, this system should be cross referenced with the company’s bank statement each month to ensure accuracy and transparency. Expenses that aren’t categorized in a timely manner can lead to confusion and even have detrimental impacts on future management decisions. Waiting until the last second to get your books in order won’t just increase your chances of filing late, but it will also hurt your business at its core since decisions will be made off of insufficient data.
3. Not Knowing the Law
Many small business owners like to believe that their accountants are perfect and know everything there is to know about tax laws in their states. This is, of course, false. Small business owners need to take it upon themselves to research exactly what is expected of them beyond simply paying federal, state and payroll taxes. If your accountant makes a mistake, the penalty falls on you, not them. These penalties can be quite severe and carry some substantial fines. It is important to utilize all the various free online resources so you can know exactly what your company is responsible for paying. Be sure to check out www.SBA.gov and www.irs.gov/Businesses for useful tips and tools about staying updated on tax laws.
Are you a small business owner who has learned the hard way about making tax mistakes? Please drop us a line in the comments section with some tips of your own!