Running a small business is a super exciting experience, but one of the more daunting elements can be preparing taxes. Many entrepreneurs are unaware of the common yet costly errors that can occur when preparing small business taxes. In some cases, it may even lead to an audit. The audit process can be time-consuming, stressful, and expensive. To help you avoid the pitfalls of tax preparation for your small business, you can hire one of the best tax preparation companies. But what exactly should your business never make when preparing for its taxes? Read on.
Failing to Report All Income
One of the most serious and costly mistakes small business owners make when preparing their taxes is failing to report all of the income they have received. This includes any money received from investments, loans, grants, or other sources. Even if you forget or don’t think it’s necessary to report an income source, it’s still considered income and must be reported. Ignoring this fact can have serious consequences, including fines and penalties from the IRS.
Overlooking Tax Deductions
Another costly mistake businesses make when preparing their taxes is overlooking the tax deductions they qualify for. These deductions can help reduce the tax you owe, which leaves more money in your pocket. Some of the most common tax deductions small business owners can take advantage of are home office expenses, travel and entertainment, advertising, and professional fees.
Neglecting to File Separate Business Returns
Small business owners often make the mistake of filing their taxes as individuals instead of separate business returns. This means that all expenses related to their business are reported on the same return as their personal expenses. This can create confusion and result in lost deductions or tax credits, costing your business money. To ensure you’re filing correctly, speak with a qualified accountant specializing in small business taxes.
Keeping Poor Records
Finally, keeping unorganized, poor financial records can lead to costly mistakes when preparing taxes. Having a sound filing system in place is essential for any small business. This allows you to separate your personal and business expenses, which makes it easier to identify deductions and credits that may apply. It also helps ensure accuracy when filling out tax forms, which reduces the chances of an audit.
We all know taxes can be tricky and confusing, but with a little bit of planning and knowledge, you can make sure your small business doesn’t fall victim to these costly errors. By taking the time to understand the tax laws that apply to your business, hiring the right accountant, and keeping accurate records, you’ll be able to prepare taxes for your small business in no time accurately.