For a small business owner, trying to file taxes may seem like a burden. The process of compiling paperwork and understanding tax rules is stressful enough, and with merely only 25 percent of small business owners feeling confident that they file their taxes correctly, it’s no doubt there are worries about messing up your business’ tax returns. Fortunately, if you are aware of these common tax mistakes to avoid, the odds are you or your tax advisor will be able to notice them before it’s too late.
1. Reporting the wrong income
Misreporting income can be a common tax fault for anyone, whether it was purely a mistake or not. As a small business owner, you probably have a lot of 1099 forms that contain this income information, so it’s understandable that there may be a time when numbers get mixed up. Seeing a tax advisor can help you keep track of your income reports, as well as make sure the numbers being input on your return are accurate.
2. Mixing up personal and business expenses
Another easy, yet harmful tax mistake to avoid is reporting personal expenses on your small business’ tax return. A simple way to keep track of what expenses are business vs. personal is by having separate credit cards, bank accounts, and filing folders for each. If you are unsure whether an expense would fall under business or personal, then read over the IRS’s Publication 535, which provides an overview of this common confusion.
3. Taking too many deductions
The concept of business-related deductions can be enticing, as it simply means that you get money back for certain things you bought if they assisted your business. Don’t get too greedy, however, as the IRS will flag your return if you try to claim anything and everything. For instance, there are deduction limitations to be aware of, such as only 50 percent of business-related meal expenses can be deducted or that only up to $5,000 can be claimed in new business expenses for the first year. Talking with your tax advisor will ensure you don’t disregard any of these deduction rules and are claiming expenses that qualify.
4. Not being organized
While this may seem simple, not being organized with your business’ tax documents can cause unnecessary filing problems. Scrambling at the last minute to compile all the paperwork you need for your returns may cause you to file for an extension. While tax extensions are not bad, it’s best not to fall into the habit of requesting them each year. Getting the help of a tax advisor to stay organized can help you avoid the extensions and file at a reasonable time, making sure you’re ready in case anything needs to be fixed on your return.
Unsure if your small business will be faulty for one of these tax mistakes? Contact Emerald Financial Partners today for guidance on tax returns to ensure you are filing correctly!
Disclaimer: These are general guidelines, not set guidance or advice. Each business and personal situation is different and may require customized assistance based on their circumstances. Please consult Emerald Financial Partners about your specific needs.