Reporting your sources of income at the time of tax filing is one of those popular headaches that almost no one would call a delightful experience. Spending a considerable amount of time to understand all technical jargon and the constant insecurity of making mistakes in tax returns have been traditionally unpleasant rituals for business owners.
Making a silly mistake or an underwhelming paper submission could lead to hassles that you would not want in your business life. Even the risk of an IRS audit is to be thwarted at all costs. Often, even the smallest of businesses have their own share of dilemmas due to erroneous tax filing.
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Top Tax Filing Mistakes For Small Business:
1. Underreporting Your Sources Of Income
One of the main concerns while filling out your 1099 forms is listing your sources of income correctly. The IRS monitors 1099 forms using computerized systems from non-employee compensation (1099-MISC) form, retirement forms(1099R), or your investment account forms. Additional care is to be given while filling these forms to avoid any unnecessary scrutiny. Also, paying heed to any expert advice on underreporting can keep you away from any IRS inquiry.
2. Deduction Of 100% Meal Expenses
The revised tax plan under the Trump administration implies that any bills that show
what you spent on a client’s meal is not deductible anymore. If it serves a legitimate
business purpose, then 50% of your bills are deductible.
3. Absence Of Distinction Between Personal And Business Income
If you have a single credit card for both personal and business needs, then now might be
the time for you to consider separating in terms of cards. If you have your household
expenses and client entertainment expenses on the same card, reporting your income
becomes a tiring exercise inviting unwarranted confusion.
4. Avoiding A Tax Plan
If you are a person who is not fond of shocker tax bills, then we have a rather simple
advice for you. Start your tax planning. These days, tax coaching is a comfortable
service provision with experts who work hard to find a legal and safe way out from
overpaying taxes. By resorting to such planning techniques, a business owner can avoid
any stress while filing during the tax season or even unexpected tax bills which you
never have expected.
5. Ignoring Home Office Deduction
Due to the incessant rumors about strict IRS audit possibilities that surround this
deduction, many find themselves to be reluctant to opt for it. Home Office deduction is a
worthy choice for legitimate work-from-home business owners.
6. Forgetting To Keep A Mileage Record
IRS Publication 463 gives guidelines on how to perfect your personal vehicle’s mileage records. Vehicle owners often find it difficult to track their records but these guidelines must help in doing so.
7. Skipping Quarterly Payments
Many business owners have grievances that attribute to paying quarterly taxes. Some
even encourage underpaying the estimated tax amounts which even include Self-
employment tax and Medicare taxes. Such practices can relieve them with the short-
sightedness of some extra profit but steadily increases the risk of tax penalties.
8. Not Claiming QBI Or Business Startup Expenses
Claiming for QBI (Qualified Business Income) or Section 199A deduction can lower your
tax liability depending on your income level, business structure or type of business.
On the other end of the spectrum, newbies who are still finding their firm ground can
claim for deductions upto $5,000 with additional expenses to be deducted over the next
15 years. Special rules start to apply when your startup costs exceed $50,000.
9. Unwise Choice Of A Retirement Plan Or Contributing Less For Retirement
Work closely with your Certified Financial Planner to know the right retirement plan for
your small business. If your choice of retirement plan goes right, tax liability reduces
considerably and the future of your small business is secured.
Tax credit plans like Solo 401k are attractive offerings when you choose a retirement plan for your business. You could enjoy multiple privileges in the long run if you fund your retirement adequately with about 20% of your yearly income. Avoiding any contributions can result in missing pre- tax privileges.
10. Not Utilizing All Deductions
Being aware of tax breaks that you were not eligible for last year, could be the saving
grace in the current year as they might become deductibles. The home office deduction,
investment interest, net operating losses are a few worthy examples of such deductions.
11. Not Having Proof Of Charitable Contributions
If you wish to opt for deductions on your charitable contributions, IRS guidelines state
that written acknowledgement is necessary for any amount that exceeds $250.
12. Late Filing
For business owners who have a complex finance system, tax deadlines are a real
nightmare. Work with tax coaches to understand how you can plan your filing without
panic. The more complex your source of income is, the better your planning must be.
13. Inadequate Paperwork
Filing your tax return without attaching the required forms, schedules or election
statements could result in rejection. Working with a tax consultant can help in avoiding
such debacles.
14. Filing At The Last Minute
April 15th 10 AM is an absolute nerve-wracking deadline for all tax related people out
there. Waiting for the last week to find all the sources of income and wishing for a
smooth filing is almost a procrastinative dream.
15. Keeping Your CPA In The Dark
Your Certified Public Accountant needs to know everything about your profile including
marital status, business structure changes and every change in expenditure. Tax mistakes or typos in forms due to clueless work by CPAs can result in the IRS penalizing
your filing.
16. Unnecessary Spending To Get A Tax Break
Most business owners are faced with decisions that influence them to spend
unnecessarily just to get a tax break. This could probably harm your financial adequacy
for the upcoming year and even result in a guilt ridden future.
17. Missing Out On Cost Basis Records
Failure to keep a check on your cost basis records can end any claim for deductions.
Pass-through businesses have a limit to claim losses on personal returns. Any future
sale of your business will have taxes depending on the gains above basis in the
business rather than the amount received. It is also a wise option to increase basis by
capital improvements.
18. Ignorance Of Federal And State Tax Rules
Depending on a sound tax planning strategy that utilizes both federal and state tax
provisions can help you understand the nuances in each set of rules. Some states tend
to be more relaxed than others when it comes to tax. Awareness of these rules can help
in a healthy tax plan.
19. Not Attending To Bookkeeping
For business owners who have a pile of unrecorded receipts and bills are most likely to
go through an absolutely horrendous tax season. Using bookkeeping software or finding
a bookkeeper that fits your budget to keep track of your spending can ensure a cleaner
tax filing session for you and your business.
Avoiding these mistakes should not be a time consuming affair. For small to moderate
business owners who dream of large margins, planning your taxes and bookkeeping
should be seen as an integrated activity in their business. No one wishes to run into
trouble with the IRS. In short, keeping your eyes open can save you from serious tax
troubles.
If you need additional help preparing your finances and expenses, the tax professionals
at UBOS are here to help. Not only can they help put you in a good position with your tax
returns, but can help you receive a higher amount of financial aid in return. One of theirs
highly trained professionals is eagerly waiting to assist you, so contact today or visit
