COMMON TAX MISTAKES BUSINESSES SHOULD AVOID
Although tax filing season in Texas is over for another year, it is never too early to start planning for next year. Business owners face unique challenges when it comes to filing taxes and even the smallest mistake can lead to lost income or an audit by the Internal Revenue Service. By avoiding common tax mistakes, businesses can minimize risks and continue to operate profitably.
According to Microsoft, the IRS prefers extremely clear lines when it comes to separating business and pleasure. There should always be a clear, solid line between business expenses and personal expenses. An employee may run to the post office on a work errand and be allowed to deduct the mileage for the drive. If the errand becomes personal and the employee stops at the grocery store, the odometer should stop ticking the second the errand is not business-related.
Many businesses miss out on deductions that can save them money each year. Sometimes to be extremely cautious and avoid an audit, things such as daily printing expenses or home office deductions are missed. Start-up businesses can sometimes deduct close to $5,000 in original startup costs. Insurance costs and medical reimbursements may also fall under the deduction or credit umbrella.
Another mistake that is commonly made is when an employer does not place their employees in the right status category. Employees can be W-2 employees or independent contractors and how they are categorized can affect the taxes a business owes each year. It is extremely common and easy to mistake an employee for an independent contractor and the IRS has severe consequences for doing so.
Tax law can be confusing and expensive when not done right. Business owners may benefit from speaking to a tax attorney before hiring employees, calculating expenses or filing taxes each year.