Are you a small business owner struggling to get ready for tax season, swearing that you will be better organized next year? Whether you have been in business for several years or you are just getting started, here are six mistakes to avoid with tax preparation.
- Overlooking Car Deductions
Although most business owners are aware that you can deduct mileage, you might be missing some critical car deductions on your return. Other auto-related expenses that can be deducted include parking fees, insurance and gasoline, but you must have proof that these costs are related to your business.
- Forgetting Startup Costs
Like car deductions, startup costs can be written off as well, a critical step for entrepreneurs who are preparing to meet the public. If you paid for advertisements, market research or employee training prior to daily operations, you are probably eligible for a significant tax break.
- Estimating Your Expenses
When it comes to taxes, audits are a much dreaded experience. Unfortunately, many business owners tend to estimate expenses, which is a red flag for the IRS. Keep meticulous records of miscellaneous costs as well as recurring payments. For an expanding business, accounting software is a valuable investment.
- Ignoring Additional Taxes
Another common mistake made by entrepreneurs is ignoring other obligations during tax preparation. It is easy to be blinded by your responsibility to the IRS, but property and self-employment taxes are just as important to your overall success. Be sure to check local tax laws to avoid late fees or fines.
- Miscalculating Payroll
Payroll taxes can be a source of confusion for small business owners too. If the right amount is not deposited in a timely manner, the penalties can be devastating for your finances. Outsourcing deposits to a payroll company usually eliminates this concern. While this does require a small fee, most people prefer not to juggle payroll taxes on their own.
- Mixing Your Accounts
Most business owners know not to mix business and pleasure, but this should also apply to your finances. Keep your professional accounts separate from your personal accounts to simplify your records and track expenses with precision. If you own a home business, your office should be a distinct space as well so your annual deductions are easy to calculate.
In the end, gathering annual financial information is not a task that can be completed overnight. You must constantly review your records and stay on top of taxes. Be honest about your mistakes so you can develop good habits and confront tax preparation with confidence.