You are probably familiar with the saying, "nothing is certain in life except death and taxes." And while it's true that taxes are an inevitable part of life, there are ways to stay on the right side of the law. Whether you're a small business owner or an individual taxpayer, making one (or more) of these common business tax preparation mistakes can cost you big time.
1. Not Keeping Receipts and Documentation for Expenses
This is perhaps the most common mistake taxpayers make. Whether a small business owner or an individual, keeping track of your expenses throughout the year is important. This documentation will come in handy come tax time, as you'll be able to deduct a portion of your expenses from your taxable income. Not sure what counts as a deductible expense? Common examples include office supplies, travel costs, and employee salaries.
2. Failing to File or Pay Taxes on Time
This is a mistake that can end up costing you big time. Not only will you be charged interest and penalties on any unpaid taxes, but the Internal Revenue Service (IRS) may also initiate collection proceedings against you. This could lead to wage garnishment, bank levies, and even seizure of your property. To avoid this nightmare scenario, consult a tax preparation service.
3. Claiming Unqualified Dependents
This mistake is commonly made by parents who claim their adult children as a dependent. While it may seem like a harmless way to save a few bucks, it can lead to significant penalties if the IRS catches you.
4. Deducting Personal Expenses as Business Expenses
Just because something is considered a business expense doesn't mean it's always deductible. For example, if you use your home office for business and personal purposes, only a portion of your mortgage or rent payment may be deducted as a business expense.
The same goes for vehicle expenses — if you use your car for personal and business purposes, you can only deduct the percentage of miles driven for business purposes. When in doubt, consult with a tax preparation service before claiming any deductions to avoid costly penalties down the road.
From failing to keep receipts and documentation for expenses to deducting personal expenses as business expenses, knowing what pitfalls to avoid can save you time and money come tax season. Consult a business tax preparation service to be on the right side of the law.
To learn more, contact a company like Martinson & Carter CPAs, PA.