We took the time to share some common business mistakes that was part one of two, and today, we at Mark Dicus & Company would like to conclude with part two of two to help businesses avoid these common tax mistakes.
Depending if you use independent contractors, employees, or a mixture of both, your tax liability will be different. Employees must be paid at least minimum wage and overtime must be paid as well. Independent contractors don’t have those rules, however. There are specific guidelines that determine whether or not your staff are considered employees or contractors as this isn’t just a matter of if you want to pay them as an employee or a contractor. This is also including your spouse if they are receiving company paycheck. The IRS could hit you will big penalties if you file incorrectly.
Neglecting to Forward Figures from the Previous Year
When you do your taxes this year, the first place to start is with your taxes from last year. Check for any items that need to be carried forward such as charitable donations, capital losses, as well as businesses deductions can be applied to multiple years if they exceed the deduction amount. You can achieve a lower tax bill if you miss these deductions.
Not Applying Deductions or Keeping Track of Startup Costs
Until you have your first sale, you cannot deduct your startup costs for your business. Stuff like inventory, office space, and even your new business laptop before you open your doors you’ve likely incurred a lot of expenses. However, you can’t claim those until you have income to claim them against. To get those costs back, make certain you keep track of everything. You can claim $5,000 in your first year for startup costs, and even another $5,000 for operational costs for many businesses.
Not Properly Reporting Side Business
Collecting income from other avenues in addition to running your business need to be included. For example, working side jobs for Uber or Lyft, or earning from an investment account. A 1099 detailing that income is given to both you and the IRS. Be sure to include any extra income in your tax return. You could owe penalties and fines for not reporting it in addition to owing taxes on those earnings.
Missing Tax Deadline
This is the easiest to avoid. You can get behind before you’ve even filed if you miss your tax deadline can cost you money in the form of penalties and fines. Be sure to start with enough time to get everything done if you opt to prepare your taxes yourself. A professional can devote more time to your taxes if you hire a professional early. Consider filing an extension if you can’t make the tax deadline in April.