Running a small business is a difficult task and creating a plan for your taxes can become an afterthought. Making tax mistakes can lead to large unexpected payments and even fines. Business owners need to be mindful of their expected tax payments and be aware of the changing regulations.
If you are a business owner who dislikes taxes and bookkeeping you are not alone. A 2014 poll found that 40 percent of owners said that calculating taxes is their least favorite part of having a small business. This post will cover three common tax problems that your small business can have and steps you can take to prevent issues.
Here are three common tax mistakes that small business can make:
- Choosing An Unfavorable Business Structure: Choosing the right business structure can help you avoid excessive taxes and set up your business up for long-term success. Determining what structure is most favorable for your business is a complex question that depends on many factors, including the cost of administration and who holds legal liability. Changing your structure after incorporation can be a challenge, so make the right decision at the start of your business.
- Not Claiming Available Deductions: Business owners can overlook tax deductions and end up paying more than needed to the IRS. There are many types of deductions that business owners can overlook, including personal vehicle use and legal fees. Business owners should keep their original expense receipts available in case of an audit.
- Incomplete Record Keeping: Running a business often takes more than 40 hours a week and record keeping may not be a priority. This lack of documentation becomes a problem when calculating deductions and separating personal and business receipts. Having a record of your business's financial transactions can prevent errors in your filing and give you an idea of expected payments.
Tips to avoid tax problems
Small business owners who take steps to prevent tax issues are already ahead of much of their competition. Owners should create a financial record keeping system that they can use for daily business expenses. Tax professionals must also be able to understand your records, so avoid shoe boxes full of receipts. Hiring a knowledgeable attorney can be the right step for owners when choosing a business structure and determining what deductions are safe to claim.
While making the right tax decisions is a challenge, these choices will save you time and money when filing.