Being a new, small business owner comes along with a lot of responsibilities. While day-to-day operations might be overwhelming, don't get so overwhelmed that you end up overlooking important factors like tax preparation mistakes in this area can be costly. There are a number of tax issues that can easily be avoided.
Taking Too Many Deductions
To any small business owner, deductions are a lifesaver that help you reduce your tax liability by claiming many of the operational costs that come along with running a business. Use deductions wisely. Don't get carried away. As a general rule of thumb, you are only allowed to claim deductions that are considered necessary and ordinary expenses.
Claiming a family vacation simply because you sent a few business emails while on the trip does not make the trip a business trip. Which ultimately means you shouldn't be claiming it. Taking too many deductions will only raise red flags and potentially lead to an audit.
Overlooking Estimated Tax Payments
When it comes to estimated tax payments, some small business owners with low income levels assume estimated tax payments don't pertain to them. The IRS states that any partner, S corporation shareholder, self-employed person or sole proprietor that will owe more than $1,000 in tax payments should be making estimated tax payments each quarter.
Failing to do so may result in penalties. Make sure you are working with a tax professional to get an accurate assessment of your potential tax penalty to see if you need to be making these payments.
Failing To Keep Good Records
Make sure record keeping remains a priority for your business. Particularly when it comes to new businesses, record keeping isn't always a priority as owners are often swamped with daily operational tasks. However, keeping adequate records can ensure your taxes are accurate, saving you stress and money in the long run.
Important records to keep include payroll data, inventory cost sheets, utility payment receipts, operational business receipts and any other financial details. When it becomes time to prepare your taxes, providing the preparer this information will simplify the process. Sort all of these documents by month and type to keep retrieval easier.
Small business tax preparation should begin well before it's time to file your small business taxes. Make sure you are working with a tax preparation professional as early as possible to help you prepare and ensure your information is accurate. Contact an accounting firm, such as Groskreutz, Schmidt, Abraham, Eshleman & Gerretse CPA, for more information.Share