Small Business Tips
Tax season is the collective groan heard around the world. We get it. No one enjoys filing their taxes, even when they turn preparation over to a skilled professional. If you're doing your taxes right, managing your small business taxes should be a year-round process.
Keeping up to date in real-time makes the effort come tax season exponentially easier. But if you're not staying on top of things, you could make these five common tax mistakes for small businesses.
1. Incorrectly reporting income
If you over-report or under-report your income, in the best-case scenario you're asking for an audit. In the worst-case scenario, you may face fraud charges. Of course, we'd never suggest a fine, upstanding citizen such as you would deliberately under-report your income.
But mistakes can happen, especially if you're balancing invoices and business payments. Sometimes payments may be reported by your payers in one pay period. You may not record them until another pay period, though. That separate pay period may overlap tax years.
The IRS will compare your reported income versus any payments reported made to you. If they don't match up, there may be an agent at your door asking to examine your financial records. Luckily, if you've made a mistake, you can clear up discrepancies by submitting corrected forms.
The same can be said if you over-report your income. The occasional error is inevitable. But you can prevent future mistakes by keeping accurate reports.
Maintain your reports year-round. Always update your financial reports and any associated tax documents immediately. Keep detailed, accurate records of all payments sent and received.
2. Not separating your expenses
When you run a small business, it can be easy to blur the line between business and pleasure. Unfortunately, the IRS is not fond of blurry lines. They expect a clear demarcation between your personal expenses and your business expenses.
If you take your car out to run errands, you can deduct mileage for a drive to the post office to ship customer packages. That side trip to the pet store for your cat's hot pink claw covers, though? The odometer stops ticking the moment you leave the post office.
Any side trips and extra mileage do not count for your small business taxes. One inaccurate expense deduction can draw your taxes into question. Don't blur the lines between business and personal.
To avoid IRS scrutiny, keep meticulous records of expenses and receipts. Separate everything firmly, with no mixing or confusion.
