To err is human. However, as far as tax is concerned, one small oversight can have far-reaching implications for your business. A problem with your tax return could mean a visit from the IRS, penalties or even delayed tax refunds.
Regardless of the size of your business, filing taxes can be daunting. However, it is in your best interest that you get it right the first time. Diligence while prepping your taxes can help you avoid serious trouble for your business.
Here are common mistakes you need to avoid while filing your business taxes.
This is especially common among startups. Most entrepreneurs fall for the misconception that they should deduct all startup expenses from the first year of the business’ income. Well, this can turn out to be a costly mistake.
Basically, the cost of starting a business is usually spread over 15 years, with the IRS allowing for a $5000 deduction in startup costs as well as $5000 in organizational costs during the business’ first year of operation. And still, these deductions only apply if your annual business expenses are $50,000 or less.
Incorrect employee classification
If you are more than a one-man-band kind of business, you need to pay attention to the subject of employee misclassification. It is not uncommon for businesses to bring in independent contractors to help take care of specific projects. Unfortunately, most businesses end up wrongly labeling contractors and employees during tax time.
For tax purposes, it is important to understand the difference between an independent contractor and an employee. Independent contractors are responsible for filing their own taxes. However, that is not the case when it comes to employees. The law requires employers to withhold both employee and income taxes.
Filing business taxes can be complicated. However, it does not have to be a nightmare. Staying on top of your tax obligations can keep you out of trouble with local, state and federal agencies.