If you operate a small business, you should ensure that you take advantage of every deduction and benefit available to you. This step is especially important when you’re just starting out. However, you also need to be careful not to make costly mistakes that could result in tax penalties or a time-consuming audit.
Need a little guidance about what to do (or what not to do) when preparing your tax returns? Just keep reading.
End-of-Year Tax Checklist
The end of the year is the perfect time to reflect on your company’s financial performance over the past 12 months and to establish new goals for the future. Here are a few things you’ll need to do once you’ve finished celebrating your company’s birthday:
- Generate financial documents such as profit and loss statements and balance sheets.
- Create a final tally of all your business expenses, including advertising, transportation and travel, wages, rent, utilities and supplies.
- Double-check the paperwork for your vendors and contractors, including 1099 tax forms, and make sure you’ve paid them in full.
- Calculate the size of any employee bonuses you will pay out, and make sure you withhold the appropriate amount of tax.
Tax Mistakes to Avoid
You can be easily confused by all the IRS rules and regulations for small businesses, but you shouldn’t let that difficulty become your excuse. Avoid these top tax mistakes that countless small businesses make:
- Spending too much. If you’re spending money just to use it as a business deduction, understand that you won’t save all of that money in taxes. Depending on the specifics of your business situation, you’ll save, at most, only part of it.
- Getting too personal. Even as a small business owner, you can’t deduct expenses like home rent, groceries and personal items on your business return. If there’s something you use for business and pleasure, such as a home office or a computer, make sure that you keep the lines between the uses clear and distinct.
- Not paying on time. Although everyone knows that “Tax Day” in the U.S. is usually April 15, business owners are expected to make quarterly tax payments based on an estimate of how much they will owe for the entire year. If you fail to make these payments, you might end up facing tax penalties, interest charges or an audit.
If you’re concerned about making these or other common tax mistakes, you should speak with a tax professional. MAVENTRI is ready and willing to help businesses who need tax preparation. Cloud-based accounting software such as Xero can also help you oversee your business financials so that you know what to expect come tax time.