There are tons of articles out there all about what small businesses should do to prepare for tax season—but what about what not to do? That list is equally important! As a small business owner, you’re an expert in your niche and industry—not necessarily a tax expert. That’s why it’s important to seek out professional guidance to make sure you do everything by the book. Keep reading for some of our best tips for avoiding common mistakes this year.
Don’t Overestimate How Much of Your Startup Costs Are Deductible
This will come as no surprise, but your first small business tax season is when slip-ups are the most likely. That means you should go in with as much knowledge and as much preparation as possible. This includes triple checking how much of your startup costs are tax deductible. Although many people think it’s all deductible, this misconception can get you in trouble!
For starters, you have to make a sale before anything is deductible. After that, those expenses are deducted over the course of the next 15 years. If your total first-year expenses were less than $50,000, the IRS will allow up to $10,000 in deductions. If your first-year expenses were more than $50,000, you can still receive your deduction, but it will be reduced by how much over $50,000 your expenses were.
Don’t Choose the Wrong Entity When Registering Your Business
Making the wrong choice here can double the taxes you owe, which definitely isn’t ideal for a small business just starting out. The business tax entity you choose will depend on several factors, including what you want your business structure to look like, your future financial goals, and how many people you plan on employing.
Here are the most common entities:
- Sole-Proprietorship;
- C-Corp;
- Nonprofit;
- LLC;
- Partnership.
Each option comes with its own benefits and its own potential downfalls, so it’s important that you do in-depth research or consult with a professional to make sure you’re choosing the right entity.
Don’t Mix Your Business & Personal Finances
Did you know that client dinners aren’t always deductible? Or that the cost of your commute isn’t a write-off? Even business trips (which has the word “business” in it!) can get complicated when it comes to tax law. Not knowing where the line is between your personal and business expenses is a huge red flag to the IRS, so it’s very important to keep things clean and organized. As with most of these tips, it’s always safest to consult a professional tax professional.
Don’t Keep Poor, Disorganized Records
In a sense, you should always be preparing for tax season. If you maintain this attitude, you won’t be left scrambling come tax time to get everything in order! Not only can disorganized records cost you money in lost deductions, they can also lead to bigger problems if your business is ever audited. Make sure you’re adding every receipt to your files and updating your accounting software regularly.
We Can Help Make Tax Season a Breeze
This list is a great place to start when it comes to the “dos” and “don’ts” of small business tax season—but it’s only scratching the surface! Things get complicated fast, and navigating taxes isn’t every business owner’s strong suit. Trust the experts at Banks, Finley, White & Co. to help you with whatever you need. Get in touch with one of our professional accountants today, and know that your small business is in good hands!