With small business taxes, the rules and regulations can be complicated. It can lead to confusion and costly mistakes, so business owners must know what they’re dealing with. Tax problems are a major concern for many small businesses. Thankfully, they’re preventable and can be avoided by working with a knowledgeable accountant throughout the year rather than during tax season.
Underestimating Your Income
Underestimating your income is a common problem for small business owners. It is often difficult to predict how much money you will make in a given month, especially if you are relatively new to the workforce or your product line is seasonal. Fortunately, some reputable online tools help you estimate your business’s income. As a general guideline, you should put at least 30% of your monthly gross business revenue into a special small business savings account. You should also set up automatic transfers to this account, either monthly or quarterly. Keeping track of your business’s expenses and sales is important, but so is having the right information in front of you at the right time. If you have the proper tools, you can make informed decisions about how much to charge for your products or services and how much to discount them to maximize your profit margins.
Underpaying Taxes
Denver business taxes are a big deal for business owners. They must be paid by the end of the year, and late payments are subject to penalties and interest charges. Small company entrepreneurs sometimes take on several tasks and hats, so they frequently need to make corrections to their tax preparation. However, most of these errors can be prevented. One approach is using accounting software to track your company’s earnings and outlays year-round. It will give you an accurate picture of your taxes and reduce your tax bill by identifying deductible costs. The IRS recommends that businesses use a qualified tax preparer – such as a certified public accountant or an enrolled agent – to assist them with their taxes. Hiring a professional will save your business money and ensure you follow all the regulations and laws of the letter.
Not Tracking Deductible Expenses
If you’re a small business owner, tracking your deductible expenses is crucial. Not only does it help you manage your finances and reduce your tax liability, but it also helps you keep track of cash flow and set up day-to-day business plans that can ensure the longevity of your company. The IRS has several rules that you must follow to claim your deductions. Keeping good records and filing your tax return on time are two things that can ensure you can claim all legitimate expenses. However, some expenses can be considered non-deductible and may result in a tax levy or audit. These include entertainment costs, such as taking clients to concerts or sporting events, and health insurance premiums for yourself and your employees. Likewise, the IRS is very suspicious of business meal expenses, including lunch meetings and travel-related meals. The only way to ensure you’re claiming the maximum amount of money is by carefully tracking your expenses and using small business accounting software.
Failing to Classify Your Business
One of the most common tax issues that affect small business owners is failing to classify their company correctly. The correct classification could make or break your bottom line. Your specific needs and requirements determine whether you operate as a C Corporation, S Corporation, Limited Liability Partnership, Single Member LLC or Sole Proprietor. The correct tax year will also depend on your business structure and location. The IRS website offers several resources to assist you with deciding on the best way to classify your company. Failing to track your expenses is another common tax mistake. Keeping track of deductible expenses is a good idea, and it may help you save money in the long run. It’s also good to periodically sweep your operations and ensure you are not overpaying your taxes.