Big tax mistakes that small business owners should avoid
Taxes can present a real challenge for the small business owners. Failure to comply with tax laws or filing requirements can be costly mistakes. If you’re a small business owner, it’s important for you to be aware of some of the more common tax mistakes, you may take the necessary steps to avoid them.
Many small business owners are not knowledgeable when it comes to what is tax-deductible. If you’re just starting your new business, the expenses that you incur before your first sale or transaction are considered as startup costs. Where many small business owners go wrong is assuming that all these costs can be deducted before their first sale. The IRS allows you to deduct $5,000 in business startup costs as well as $5,000 in organizational costs only if those costs totaled $50,000 or less. The remaining costs can be amortized in annual, equal portions over a 15-year period.
If your spouse is an employee of your business, both of your medical expenses and health insurance premiums as well as those of your children, if applicable, are write-offs. This offers real benefits to small business owners that have to pay for their own health insurance.
Making the right choice next time
Another common tax mistake made by small business owners is mixing personal and business expenses — keep them separate! Set up a separate business account, and, if you use your business account for a personal expense, do not deduct it on your taxes.
The type of company under which you file can make a difference when it comes to the amount of taxes you end up paying. The S Corp is a good choice for a small business because you only pay taxes on profits through your personal taxes.
One of the biggest small business tax mistakes in not paying your taxes on time. The IRS usually adds a penalty of 0.5 % to 1% per month to an income tax bill that’s not paid on time.
If you’re just starting a new business, a small business tax checklist is a must and should include:
- Cost of goods sold
Work with a professional
By working with an accounting service for businesses, you can avoid making costly tax mistakes as well as minimize both current and future tax liabilities. At GYL we offer our clients a full range of accounting, audit, business advisory, and tax services.
Our approach to tax services for business owners is proactive rather than reactive. We strive to keep current on new tax laws and legislation so that you’re not put into a position of reacting to a potential tax problem.
In addition to tax services, we also offer our business clients accounting services, on-site training for personnel, and financial consulting services. See GYL Our Difference to find out what sets us apart from other accounting firms.