There are two common mistakes made by many small business owners when it comes to tax. Many of them either spend way too much time on dealing with their own taxes when they could be outsourcing the work to an accountant. Others totally neglect it, and tread water until this negligence inevitably comes back to bite them. It may be dry, but understanding your taxes is essential to your success as a business owner. Here’s some handy advice for the road ahead.
The first and possibly most important piece of advice I can offer is to make sure you know about all the deductions you qualify for. Many new business owners fail to take advantage of these, and end up realising that they’ve been screwing themselves out of a significant amount of capital. Pretty much any expenses which you can prove helped you develop your business in some way are deductible. Meals, travel miles and even entertainment in some cases can all be deductible for small business owners. Because of this, it’s very important to start and maintain a diary for all your business expenses, and retaining any important receipts.
Another important tip is to keep vigilant for any of the IRS’s red flags. I hate to break it to you, but small businesses are a favourite target for the IRS. They know that small business owners have the habit of estimating their payments and scramble for deductions more than anyone else. Big Brother is watching, so make sure your business avoids anything that may instigate a tax audit. For example, you can’t go over a year claiming deductions that exceed your income without the IRS taking an interest. The home office deduction is another red flag that will have the IRS knocking at your door. If you misinterpret deductions, you may land your business in some hot water, and end up needing the assistance of a legal firm like MCC4Tax. There’s nothing wrong with looking into business tax reductions and milking them for all they’ve got. However, it’s important to be aware of the ones which the IRS has its eye on.
Finally, make sure you’re not holding back on any payroll taxes. Of all the red flags you could throw up, this is the one that’s going to bring the IRS down on your head worse than any of them. The federal government don’t take too kindly to business owners that use payroll taxes to pay for their own operational expenses. Should they choose to investigate you, the government may target your personal assets to collect the unpaid taxes, causing you all kinds of stress and frustration. Furthermore, they may try to slap you with some pretty hefty penalties, which will be even worse. I know it may be tempting when your cash flow is being erratic, but scrimping on your payroll taxes can often spell disaster.
Keep these tips in mind whenever you’re dealing with your business taxes. Taxes are unavoidable, but that certainly doesn’t mean they can’t be manipulated!