How to Avoid Tax Errors
Tax season is a time full of pressure and urgency, which can invariably lead to mistakes. Paper trails go missing, tax deductions are not claimed, and these things can result in very expensive surprises.
The following are eight common tax preparation errors that are made by small businesses, along with some useful tips to help mitigate these mistakes.
If you started a business last year, you can write off your expenses.
The owner of a new business can write off expenses that were incurred even before they technically opened for business. Make sure that you don’t overlook these deductions and learn all you can about writing off expenses when you start a new business.
Many people are confused regarding what constitutes a genuine business driving deduction. Barbara Weltman, an SBA guest blogger thoroughly examines the issue in her blog post “Driving for Business.” Business driving refers to when you travel from your place of work to visit a vendor or customer. When you are traveling from your house to a different location it will depend on whether it is considered a business trip or not. If you are commuting back and forth from your house to your office, that is a nondeductible personal expense. But if you are working from your home office that you claim as a tax deduction, then traveling to and from your house to a business location is considered to be deductible business driving.
Limiting their deductions to just mileage is another big mistake commonly made by business owners. If you are able to prove the following are business expenses there are other costs that can be deducted, including parking fees and tolls, lease payments, insurance, tires, oil, and gas.
Don’t forget about small items
These can include education classes, magazine subscriptions, petty cash purchases, and more. Those types of small expenses often add up quickly. Be sure to track all of your expenses and then consult with your tax advisor to find out what can and cannot be deducted.
Don’t exaggerate any of your business deductions
Your accountant will help to ensure that you don’t exaggerate or overdo your deductions. That is something that can increase the chances of an IRS audit. For instance, many owners of small businesses mistakenly believe that they are able to deduct 100% of client gifts or their meal costs when they are traveling. Actually these are only partly deductible.