Small businesses need to steer clear of tax time pitfalls, missed deductions and other common filing errors. Visit checksforless.com to learn more now.
According to the U.S. Small Business Administration, 40% of small business owners say bookkeeping and taxes are the worst part of owning a small business. Are you part of this group that dreads this approaching deadline? If so, it might just be about shifting your mindset.
Chances are you’re fairly knowledgeable about the basics of tax time. You know when to file and you have the forms (W-2s for employees and 1099s for freelancers and independent contractors) that you need. However, there’s much more to consider.
Common mistakes increase your chances of an IRS audit and may also harm your business in the long-term, so says a Xero survey of accountants. What exactly are these roadmap potholes?
Viewing taxes as a one-time annual occurrence: Fifty-five percent of accountants advise tax planning should occur all year long. If nothing else, 27 percent suggest tax planning happen before the end of the calendar year.
These professionals say that small business owners make a huge mistake by only talking with their accountants at tax time. Instead, 65 percent of accountants recommend collaboration throughout the year. Taking that one step further, 44 percent advise that business owners meet with their accountants once a month.
Deduction errors: What is the most common deduction small business owners claim that they shouldn’t? Believe it or not, it’s the family pet. Fifty-four percent of accountants report that a client has tried to deduct a pet, pet care or veterinary expenses. In second place with faulty deductions? Forty-two percent of accountants report clients attempting to write off family vacation as a business trip.
And where do deduction errors led? Audits. The main cause of audits is sparked by excessive deductions (cited by 36 percent of accountants), mixing business and personal deductions (at 35 percent), and misclassifying workers (at 14 percent).
Missed deductions: By trying to avoid taking the wrong deductions, many people miss out on deductions they should be taking. Depreciation (at 30 percent citation) tops the list, with out-of-pocket expenses right on its tails at a 29 percent citation. Additionally, 16 percent of accountants say that auto expenses are overlooked, and 10 percent of these professionals also see office improvements as a missed deduction opportunity.
With a little organization and due diligence, you can beat this intimidating tax time at its own game. The first step is making sure you have pristine records.
Almost 40 percent of accountants say their clients don’t have up-to-date records. What’s more, 20 percent of experts report their clients don’t use essential tools like cloud-based accounting systems and financial dashboards.
Can good record keeping really make difference? Think about this: 54 percent of accountants estimate they would save between 5 to 20 hours preparing clients’ taxes if their clients’ financial records were up-to-date. Do the math. How much money would you save if you did the hard legwork on your own dime instead of your accountant’s? That substantial chunk of change can go far in your small business.
Accounting software provides real-time visibility and insight into the financial health of your organization. In just a glance, you can see the balance between incoming and outgoing funds, as well as which trends highlight potential problems and lucrative opportunities.
As an added bonus, many accounting software programs such as QuickBooks and Peachtree allow for compatibility with things like our laser 1099 tax forms and laser W-2 forms, further streamlining your tax time process.
Additional formats, quantities, and bulk packaging are available, so please call or chat directly for more details. For more general tax time tips, please feel free to check out our “411 on Tax Forms” and “Tax-Time Tips: April and Beyond”
articles. Please remember to refer to your accounting professional for more specific financial advice and tax time preparation requirements.
Your accountant is your friend, and you should leverage his/her expertise throughout the year, not just during the tax time scramble. Keep your records up-to-date and figure out which deductions can improve your bottom line without increasing your risk for an audit. Focus on strategies that will make you leaner and more profitable throughout the year. Soon, that April deadline will become a breeze. Happy tax time!
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