5 Biggest Business Tax Mistakes to Avoid
We know, this is a bit early for the tax season. But tax season is not the only time you should worry about taxes. Monitoring your transactions and accounting for your spending and income should be a year-round task. And since 2015 is coming to an end, we’d like to take a look back and see if there is anything you can do better next year to make tax time less stressful. As Maryland tax accountants, we come across many mistakes business owners make throughout the year that later lead to a panic mode once April approaches. Below are a few of these mistakes that you will hopefully avoid in 2016.
Procrastinating With Receipts
If you don’t input, categorize and scan your receipts within a few days of purchase, where does it end up? The best-case scenario is a desk drawer or a shoe box that you would have to sort through meticulously and feverishly come tax time. The worst case scenario is when receipts go missing. This means you can’t claim certain expenses as deductions, which means you will never see that money back. It can also make a mess in your accounting system and skew your data. If a purchase was made with cash, manually entering your receipt is the only way to track that money!
Co-mingling Personal and Business Expenses
Ideally, you should have a business bank account with a business credit card you use for business expenses. Your personal expenses should be charged to a different card. When you start buying office supplies with your personal card or paying for your hair appointment with your business card, things can get complicated. It’s not the end of the world if you only made a few mixed purchases, but if this is an ongoing activity, you may end up with a big mess by the end of the year. It will take some time and some investigation skills to untangle it.
Not Keeping Up With the Tax Law
It’s understandable that as a business owner you have enough to worry about without having to read complex tax legislation. But it’s important to know which new tax deductions have been enacted, which tax credits were not renewed and what other law changes may affect your business. If you don’t have the time to keep up with this, make sure you hire a Maryland tax accountant who does. Otherwise, you may end up missing out on tax breaks you may be eligible for but unaware of.
Miscategorizing Your Employees
How you categorize your employees directly affects how much and what kind of taxes you pay. This is one of the reasons why many business owners call their employees “independent contractors” to avoid federal payroll taxes and other responsibilities. This practice is frowned upon by the IRS and you may get audited and fined for it. On the other hand, if you have family members, like your spouse, who work for you and are not listed as employees, you could be missing out on some deductions. If your spouse is listed as your employee, you could take advantage of the Medical Expense Reimbursement Plan and potentially make your medical expenses, including premiums, tax deductible.
Forgetting About Estimated Payments
If you receive income that is not subject to federal withholding, the IRS wants you to pay quarterly taxes on it if you meet certain requirements. Generally, if you expect your taxes to be $1,000 or more after all the refunds have been applied, you should be filing your taxes quarterly on this portion of your income. Forgetting to pay may result in fines, as well as a large sum of money that would have to come out of your pocket at one time.
Want to learn more about how you can improve your record keeping and have zero stress during tax time? Give The CFO Source a call and we’ll be happy to answer your questions or offer financial advice.