Your company had a terrific year, and you’re thrilled about your projections moving forward. Of course, along with your increased success and increased income, you must report and file your taxes. Even simple mistakes can lead to audits and penalties, such as monetary fines.
As you work to get your taxes in order, be sure to keep these common mistakes in mind. Double-checking before you officially file could help tremendously moving forward, this year or any other.
1. Reporting sales tax as income.
The full price paid for any item that is subject to sales tax is higher than the actual income you received. Take that percentage off before determining what you earned to avoid over-reporting.
2. Going over deduction limits.
Even things you can legally deduct can’t always be entirely deducted. For instance, you can deduct the costs of business-related entertainment, but only at a rate of 50 percent, not 100 percent.
3. Forgetting tax breaks if you work from home.
Some reports indicate that the majority of businesses in the United States — 52 percent — operate out of home offices. If you do this, you can make deductions for those costs that reduce your total earnings. Don’t assume you have to be in a corporate office to be at work.
4. Keeping poor records.
Keeping records is tedious and sometimes difficult, but it’s crucial. Not only can you then refer to them when reporting income and deductions, but you’ll need to have them on hand if you’re audited. Keep good records and stay on top of them all year long.
5. Missing deadlines.
Always know the deadlines. If you don’t get your taxes in on time, every time, it can lead directly to a failure-to-file penalty. This is especially frustrating if you budgeted properly and you have the money ready to pay what you owe, but you still wind up with the penalty due to a simple oversight.
5. Listing workers improperly.
Are your workers employees who are on your payroll? Are they contract workers who are paid by the job? Understand what workers technically count as under the classification system and be sure they are all listed properly. The tax implications can be different. For example, contract workers are expected to pay taxes on their own income, rather than having it taken out before you pay them.
6. Not applying carryovers.
It’s sometimes easy to forget carryovers from the year before, such as net operating losses, capital losses, and the like. This is another reason that keeping excellent records is so crucial, though. You never want to forget carryovers that could help your tax obligations.
These are merely six examples, but you can see how easy it is to make mistakes on your taxes, which are amplified as your business grows. Be sure you know your legal rights and how to set yourself up for success when working with the Internal Revenue Service.
Source: Nov. 30, -0001