As a small business owner you may dread tax time, especially if you aren't sure what to expect. Although horror stories involving the IRS do exist, there is no reason to think your business could fall victim to one. You can help protect yourself by recognizing and avoiding the following small business tax mistakes.
#1: Combining business and pleasure
One of the most important things you can do as a small business owner is to keep your personal and business expenses separate. This means setting up a separate bank account just for your business, and then paying everything – including your personal wages – out of this account. You should also consider getting a business-only credit card or line of credit as opposed to using your personal funds to cover business expenses. Drawing this line between your business and personal life can be even more difficult if you work from home. In this case, you will want to have a dedicated home office with its own phone lines and other services so that you can more easily use the home office deduction on your taxes without fear of negative repercussions.
#2: Not keeping your documentation
Documentation is everything in the event you are ever audited. This means that you must keep all of your receipts and other paperwork as it pertains to your business. Keeping documentation for at least seven years is usually sufficient, although you may want to talk with an accountant to be sure. If you keep documentation digitally, make sure you have it backed up somewhere. If your computer hard drive is ever compromised you will need another method of accessing your business documentation if it is ever requested by the IRS.
#3: Ignoring various tax deadlines
As a personal tax filer, you are probably aware of the April 15th tax deadline for personal income taxes. As a business owner, though, you will have other tax deadlines throughout the year. Some may vary on a state-by-state basis. For example, how often you have to pay local and state sales tax or payroll tax can vary, with some states requiring monthly payments and others allowing for quarterly. You will also have to make quarterly estimated self employment tax payments to the IRS, and the failure to do so can result in a hefty fine. Once again, an accountant can help you navigate the maze of deadlines so you are never late.
For more help, contact a tax management and preparation service near you.
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