Taxes typically take the backseat to customer acquisition and sales when it comes to your time and attention. However, don’t get so distracted during tax season that you make mistakes that result in you overpaying your taxes, incurring tax penalties, or inviting an audit. To avoid that visit www.turbotax-2012.org to guide you on your tax preparations.
Here’s a list of six frequent tax mistakes to avoid when navigating the labyrinth of small-business taxes:
Failure To Report Information at The Right Time
The information reported on 1099s is matched to the entries on taxpayers’ forms by IRS computers. Even if you need to make modifications, income reported on a Form 1099-MISC should be reported on your return in the same way.
Consider the following scenario: you got income from a vendor in January 2014, which the vendor recorded as income paid to you in December 2013. You don’t have to list it as income for 2013 if you utilize the cash basis of accounting; therefore, you adjust your return.
Want to avoid such tax mistakes? Ensure that you maintain transparency in conveying any tax-related information.
1.Not Paying Reasonable Wages To S-Shareholders’ Corporation
The Internal Revenue Service requires that fair wages be provided to employee-shareholders in enterprises constituted as S-Corps as taxable income. Because non-wage distributions are taxed differently, one must do this before they can be made.
‘Distributions and other payments by an S corporation to a corporate officer must be recognized as wages to the degree the amounts represent reasonable remuneration for services given to the corporation,’ according to the official instructions for the 1120S income tax return.
In other words, if a shareholder participates actively in the day-to-day operations and administration of the company, they are an employee who should be paid a pay commensurate with their position.
2.Not Accurately Tracking Expenses
It is quite difficult to claim any tax deductions if you do not keep track of your costs. This means you’ll need to keep meticulous records of your business, including saving receipts, keeping a mileage log, and tracking and classifying spending.
Working with a skilled bookkeeper all year is one of the greatest ways to track this information.
A small company bookkeeper can advise you on what expenses may be deductible and how to monitor them. Moreover, they can also help you save time and money by managing your books monthly and assembling your tax information for an accountant to utilize when it’s time to file them, decreasing the scope of careless tax mistakes.
3.Not Seeking an Accountant’s Services
It might be quite tempting to save money by doing your business taxes yourself using business tax software. While this may work for simple sole proprietorships, it is one of the most influential tax mistakes for more complicated firms.
Not only do you run the risk of preparing your return incorrectly, but you also run the risk of missing out on a few important deductions simply because you are uninformed of your eligibility.
Make sure your accountant is accredited and knows your sector and tax planning when picking an accountant. Although the act of paying taxes occurs just once a year, the tax process entails several chores, fees, and considerations that have ramifications throughout the year.
4.Not Claiming the Home Office Deduction
If you run a business out of your house, don’t forget to deduct it from your taxes. Some people assume that this deduction is a red signal for auditors; however, since 52 percent of all enterprises in the United States are now run from home, one is unlikely to realize such tax mistakes.
And now, if you meet the rules for a home office deduction, you have two options: deducting your actual expenses or using an IRS-set simplified rate.
5.Not Taking Retirement Plans into Use
Qualified plan contributions reduce your current tax bill while also saving for the future. There are a variety of retirement plans to choose from. If you don’t have a plan yet, for example, you can start one by the extended due date of your return and contribute to it for that return year. Furthermore, you may be eligible for a tax credit for beginning a plan.
6.Finally, Stay Updated with The Latest Developments to Avoid Any Tax Mistakes
Changes in the legislation may entitle you to new tax advantages on your current return due to the changes. If you file an amended return, you may be eligible for a refund.