For any small business owner, tax time can evoke a sense of dread and foreboding, and it can be a very stressful time of year all round. Because of the stress and urgency surrounding tax time, it’s easy for business owners to make myriad mistakes when preparing to file their returns.
To help in avoiding making potentially costly mistakes, we have compiled a list of some of the most common pitfalls that are made by small business owners each year:
- Minor expenses should always be included
Things such as purchases made using petty cash or educational classes, may seem like insignificant amounts to be declaring, but they do mount up. Finding out what you can and cannot deduct is wise, but recording all expenses is the most sensible way to avoid missing out on any potential deductions.
- Avoid overstating your deductions
Audits from the IRS are not something any small business owner would welcome, but exaggerating your deductions could easily see a red flag being raised and result in a visit from the IRS. Some things, such as meal costs when in transit or gifts for clients, are only partly deductible, but a qualified tax professional will be able to help you with this.
Red flags may also be raised if your expenses are higher than expected for the type of business that you are running, or if they are significantly higher than the previous year.
- Don’t forget your other tax obligations
There may be other taxes that you are obliged to declare, such as property, payroll,excise and self-employment to name but a few, and not declaring them in a timely manner could result in fines.
- Keep your personal and business accounts separate
Keeping track of your expenses is made far more difficult when personal and business accounts aren’t kept separate; when it comes to preparing your taxes, it can be extremely confusing and any mix ups could result in a red flag being raised.
- Get payroll right
Being compliant with the taxes surrounding payroll, is crucial in avoiding costly fines. Many small businesses struggle with tax compliance surrounding payroll, and opt to hire a professional company to help them deal with this aspect of their business.
- Be efficient with your record keeping
Each year, many small business owners miss out on opportunities to reduce their taxable income, due to not having kept track of their expenses – which includes keeping receipts. Reviewing your accounts regularly, or hiring an accountant to do sofor you, will certainly help you to be more efficient when it comes to tax time.
- Hire the services of a professional
One way of ensuring that you don’t make any mistakes when it comes to preparing your taxes, is to hire the services of a professional accountancy or bookkeeping company; that way you will have no concerns about not being compliant with the many and varied tax laws, and your returns will be filed in a timely manner.