Small Business Tax Preparation Mistakes Entrepreneurs Need to be Aware Of
Being talented in business doesn’t automatically carry over into tax preparation. Far too many small business owners make errors at tax time that can cost them thousands of dollars or an audit. Before you put your tax forms in the mailbox, consider these common preparation mistakes:
Any time that you need to drive somewhere related to your business, you can deduct the mileage. It’s also possible to deduct a number of other transportation expenses if they can be directly linked to professional travel. This can include everything from tires to tolls depending on your record-keeping capability.
Not Tracking Small Expenses
Many business owners are surprised at the number of small expenses that can add up to a large tax deduction. Keep records of every expense that can be tied to the company in any way. This spans from educational expenses to clothing necessary for the job.
Claiming Frivolous Deductions
Claiming too many deductions can be just as harmful as not claiming enough. It’s important to consult with a tax professional if you have a question about whether or not an expense is business related. Not doing this can lead to audits and legal repercussions.
Forgetting Additional Taxes
Standard tax preparation may not cover all of the additional state and local taxes associated with owning a business. Ask your accountant about the following:
• Property taxes
• Payroll taxes
• Excise tax
• Any taxes unique to your area or industry
The more employees you have the more difficult tax preparation can be. There are specific taxes associated with payroll and combining things like overtime and vacation pay can make it difficult to keep track of everything. Many small business owners hire a third-party to simplify the payroll process.
Nothing derails tax preparation faster than misplaced records. Not keeping track of expenses and not keeping important records in at least two separate locations can lose you thousands of dollars in deductions each year. It’s also important to make sure that your business and personal finances have been kept separate. Combining these two can further complicate the process.
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