While few businesses enjoy doing taxes, making common tax mistakes can turn an already painstaking process into a nightmare. In either case, your business is your livelihood, and you've worked tirelessly to put best practices in place to ensure your success. Because you wear so many hats each and every day, the chances of you raising an IRS red flag and making a costly mistake is ever present.
However, this doesn't have to be the case, and you can reduce the chances of you making common tax mistakes by understanding what those mistakes are. Continue reading to learn a few of the most expensive and common tax mistakes for small businesses.
Failing to Hire an Tax Planning Professional
Undoubtedly, one of the best ways to avoid making common tax mistakes is to hire an experienced professional. At Dennehy CPA, we are a team of tax planning professionals who offer years of experience helping business owners avoid common tax mistakes. We will also help ensure your finances are in order and work around the clock to identify ways to save your business money and create efficiencies.
In addition, we can advise you on key tax planning issues and help you maximize your tax deductions. Simply put, the money we save our clients can easily cover the costs of our professional services and leave additional money in the budget.
Mixing Personal and Business Finances
You've seen it in movies and on TV: mixing business and pleasure rarely ever works out favorably. Take what you've learned from the silver screen and apply it to your taxes — don't mix business and personal expenses.
If your business is considered a corporation, it's an entirely separate entity and you must keep personal finances completely seperate to enjoy the corporate shield protecting your assets. However, if your business is a sole proprietorship, your business isn't a separate entity.
This means you are personally entitled to all liabilities, losses, and debts as well as profits. Even so, it's critical to keep your personal finance separate. Why? Because in the unfortunate event of an audit, you have the burden of proof to prove your business income and expenses.
Selecting the Wrong Type of Business
When you go into business, everyone seemingly has advice on the way you should set it up. Without knowing anything about your business or your goals, some people will suggest a Corporation — and happily set it up for a fee. Others may suggest a sole proprietorship, partnerships, or S Corporation. There are no best-case, one-size-fits-all form of business that is ideal for everyone's business.
In reality, the type of business you choose to establish should be based on your goals as well as the benefits of each type of business. For instance:
How do you choose the best type of business? You do so with the experienced team of professionals at Dennehy CPA. Instead of simply suggesting one type of business because it sounds better, we get to know you and your goals. Then we'll suggest the type of business that will help make those goals your reality.
Overlooking Legitimate Business Expense Deduction
In business, it's critical to maximize every opportunity to save money and reduce your taxable income. To help you along this journey, the IRS allows small business owners to deduct certain expenses to help reduce taxable income.
However, unless you are a dedicated tax planning professional — knowing what these expenses are can be tricky and challenging. Even worse, not claiming certain small business deductions will result in you paying unnecessary taxes to the IRS every year.
If you are unsure on which expenses you are allowed to deduct, asking an experienced tax accountant to review your business's costs and identify which deductions are applicable may be a great step to take. Some of the typical business expense deductions include:
Not Paying Taxes or Filing on Time
Did you know your business will be assessed a 5% penalty per month if you miss the IRS tax filing deadline. And it will continue until your tax return is filed. If you fail to pay your taxes, the IRS will levy a staunch 6% interest fee, plus a late payment penalty of .5% every month after the deadline in April. Needless to say, it's critical to file your taxes on time because the penalties can quickly add up. And if your business needs to pay quarterly taxes, your problems can be compounded even more.
Contact John F. Dennehy CPA to Avoid Common Tax Mistakes
Business taxes can be confusing, but they don't have to be. The team at John F. Dennehy CPA offer years of experience helping businesses owners save time and money.
Contact John F. Dennehy CPA today for a free tax planning consultation.