Running your own business can be stressful at times, especially during tax season. Taxes are especially burdensome to business owners who complete their own taxes without any real knowledge of taxes. Many times, when business owners complete their business taxes without any tax knowledge, costly mistakes are made. While this article is not a replacement for a tax professional, we are going to discuss how to avoid the most common mistakes made on small business taxes.
Home Office Expenses
Deductions for home offices are meant to account for the expenses you incur as you run your home-based business. Many business owners avoid the home office deductions altogether because they are scared of an IRS audit challenging those deductions. However, if you claim home office deductions correctly, you do not have to worry about an IRS audit. To qualify for home office deductions, you need to either:
- Use your home office exclusively and consistently as your primary place of business
- Meet clients in your home office on a regular basis
- Have a home office that is solely used for business and is physically separate from your home’s structure.
Your Tax Responsibility
Many small business owners are unaware of their tax responsibilities and, as a result, usually, have to pay a hefty tax bill at the end of the year. As a business owner, you are responsible for knowing what taxes are applicable to your business and for paying them. States, counties, and different districts may have their own tax requirements, in addition to the IRS requirements. For instance, businesses in California are subject to one or more of the following types of income tax: alternative minimum tax, franchise tax, or corporate tax. Additionally, there are other taxes like sales tax, property tax, payroll tax, local tax, excise tax, etc. that may apply to your business that you may not have realized until now. It is also important to remember to pay the self-employment taxes and the accompanying tax payments. Understanding your responsibilities as a small business owner will help you to avoid the costly penalties and fees that come with failure to pay the appropriate taxes.
Detailed and Updated Records
The importance of keeping good records as a business owner is sadly underestimated by many business owners, both new and established. While it can seem tempting to simply determine your annual income at the end of each year, this practice costs you valuable information about your monthly net income and specific resource allocation. This information is necessary for you to make any efforts to increase your profit and adjust expenses. Save yourself money and a recurring annual headache and keep good records.
Need Help? Contact MBS Accountancy
Choosing a locally trusted tax professional to help you navigate your taxes is a sure way to avoid costly penalties and fees. We will gladly consult with you about preventative tax filing behaviors and complex tax issues that may be present in your situation. Contact us today and learn how we can help you be worry-free at tax time!