As soon as tax season approaches, everyone rushes around at a hurried pace in order to file their returns on time. If you own a small business, this task may become more daunting as there will be many more factors you might have to consider. It is best that you stay informed of what all you require when you file your tax returns, to avoid making any possible mistake.
You don’t want to incur the wrath of the Internal Revenue Service department who will make you pay heavy penalties. Even if you hire a professional tax preparer to file your returns, it is always good to have a basic understanding of the taxes you owe. In this way, you will avoid getting scammed by your tax preparer.
AVOID THESE SMALL BUSINESS TAX MISTAKES
Make sure you take into account all the deductibles and costs your small business may incur and learn all the rules and regulations beforehand. These are the following tax mistakes you must avoid:
Know all the authorities you owe
You may be aware of the state and federal taxes that you will have to pay to the Internal Revenue Service department, when filing your returns. But as owner of a small business, you will also have to incur other taxes like sales tax, property taxes, payroll related taxes, excise taxes, self employment taxes etc.
You must have a sound knowledge of all these taxes before you file your returns. You can always refer to the Internal Revenue Service department’s website for more information.
Stay aware of updated tax codes
You must know all the updated tax codes before filing your returns. Tax codes are basically rules and regulations you must follow when filing returns. If your tax codes are outdated, then you will face heavy penalties.
Keep a note of deductibles
As an owner of a small business, you must know what all costs and expenditures that can be deducted from your taxes. If these costs are favorable to run your small business, you can significantly reduce the tax amount you have to pay. For instance, any expenditure regarding office supplies are considered as deductibles.
Difference between current and capitol expenses
Basically, current expenses are the costs you incur that directly influence your business in the current fiscal period. This can be deducted from the income tax returns for the current year. Capitol expenses are the costs that you incur that create revenue for your business in the future and increase its profitability.
This can be deducted over the life of these items, which can be either three, five or seven years according to the Internal Revenue Service.
Difference between independent contractors and employees
Independent contractors are not just your employees but offer their services to many clients. They are paid in total for what all service they provide. The employer does not need to offer any sort of tax benefits like retirement plans etc to the independent contractors but is required to do so with its permanent employees.
Home-office tax deduction rules
If your business is based out of your home, you may be able to include your home office expenses like part of your rent and utilities as deductibles in your returns. But this is only relevant if your home or that section is used exclusively for business purposes. It is best to let a tax professional or an Internal Revenue Service department official examine your home to see if you qualify for this deduction.
Recording all receipts and other costs
It can be quite a task running your own business, but it is necessary that you maintain a record of all your receipts and costs right from day one. This is necessary in order to try to deduct as much expenses from your tax as possible. It is best to keep a bookkeeping professional who can note down all your costs and expenditures as they occur in the fiscal year. These can later on be included in the tax return as deductibles.
Your small business can incur minimal costs if you know how to approach your taxes and avoid the above mistakes, as much as possible. Keep a record of all your business costs, know the different rules and taxation policies and know all the items you can include as deductibles in order to file a proper business tax return. Try to cut down on all your taxation costs by and use that revenue to further your small business.
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