Whether you’re a new business owner filing your first tax return or someone who has filed many times but still feels overwhelmed by the process, we at Chicagoland CPAs can help. That is because we take a proactive approach to business tax planning rather than attempt to deal with issues after they have created complications for you. We feel it’s far better to take the time upfront to file your taxes right and maximize your savings, than attempt to deal with issues you may not even remember months or years from now. Below are some common business tax mistakes along with how to avoid them.
Failing to Track All Business Expenses
If you plan to deduct an expense on your business tax return for this year, you must retain some type of proof of that expense. You can submit an actual receipt as proof of your business purchase, a canceled check, a transaction listed on your debit or credit card statement, or proof of an electronic funds transfer that shows the transaction date, purchase amount, and name of the payee.
The Internal Revenue Service (IRS) also requires business filers to retain an invoice or receipt that describes the purchase in a manner that makes it obvious you purchased the item or service for business purposes. Including a note of explanation will usually suffice if the documentation you received from the selling company doesn’t provide enough information.
Mixing Business and Personal Financial Accounts
Even if you’re a solo entrepreneur, we recommend opening a separate checking account for your business and possibly savings and credit accounts if you need them. The danger with mixing your business and personal purchases is that you may have no idea what belongs where when the time comes to prepare your company’s tax return. This could cause you to lose legitimate tax deductions because you couldn’t determine whether an expense was business or personal. It could also trigger an IRS audit if you assume several expenses were business-related but turned out not to be.
Classifying Employees as Independent Contractors
The IRS enforces different requirements for regular employees than it does for independent contractors. For example, a business owner must withhold federal, state, Medicare, and social security taxes from the check of every employee whether full-time or part-time. Independent contractors file their own taxes, which makes things easier for business owners. In fact, it can be so much simpler that some employers give in to the temptation to misclassify regular employees. This can be a costly mistake.
If you feel confused about the classification of someone who performs work for you, keep in mind that you have far more control over employees than independent contractors. While the latter completes work by the deadline you mutually agreed to, you cannot determine the hours the person works on the project when he or she can take a vacation, and other typical decisions you have more input into with your own employees.
Request Strategic Tax Planning from Chicagoland CPAs
As an accounting firm that caters to small businesses, Chicagoland CPAs can assist you with a wide range of tax issues. We invite you to learn more by contacting us to request a personal consultation.