It's all too easy to make tax mistakes when tax season rolls around again, although you can help to keep mistakes to a minimum by following these tips.
One of the most common tax mistakes is assuming that your regular commute from home to and from the office can be claimed as a deduction, which it can't. However, if you travel from your home to a business location, you can claim the mileage as a legitimate tax deduction if you work from a home office and claim that as a deduction. And trips from the office to a client or vendor, the mileage can be claimed.
You have much more chance of the IRS contacting you for a dreaded audit if you exaggerate or overestimate your deductions during tax preparation time. For example, gifts from a client or the cost of meals are only partially deductible for small business owners; one of the biggest tax mistakes is assuming that you can deduct 100 percent of these costs.
Self-employment taxes, local and payroll taxes and of course your property taxes are just as important as the tax forms you file with the IRS when it comes to thorough and accurate tax preparation. It's important to comply with any regulations and deadlines to make sure that you don't have a problem in the future.
Accurately tracking your expenses and income can be a challenge if you aren't doing a good job of keeping your business and personal bank accounts separate. And if you are claiming the home office deduction when filing your taxes, make sure that you can legitimately do that - that space should be used for that purpose and clearly separated from the rest of your home.
About 40 percent of small businesses face IRS penalties averaging about $845 per year, showing just how easy it is to make errors in payroll. Although you will have to pay for their expertise, it's well worth the cost to employ a professional payroll company to handle the payroll for your business. It means peace of mind and no potentially costly errors.
This can be one of the most common tax mistakes, and you can actually lose out on a tax break or refund if your records aren't up to date, complete and accurate. Keeping track of your credit card transactions, amounts payable, goods or services received and overall cash flow is essential; many experts suggest putting aside time each week to review everything. Don't forget to keep any receipts which may be required by the IRS when it's tax preparation time, and to reconcile all expenses. You can avoid potentially costly tax mistakes by using the services of an accountant or investing in accounting software, which keeps all your financial transactions in one place, making it easy to keep on top of things.
Omni Fidelity Associates