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Tax Mistakes Small Businesses Make

Tax Mistakes Small Businesses Make

As a small business owner, you want to keep every hard-earned dollar you make. But some common mistakes you’re probably making when preparing your taxes could be costing you money—or even red-flagging you for an audit, a new poll by Xero reports.

How can you stay on the IRS’s good side—and stay solvent? Here are some dos and don’ts:

Don’t:

Wait until April and then scramble to get organized—that’s a recipe for disaster.

Do:

Now that April 15 has come and gone, you need to start planning for next year’s tax time now. More than half of accountants Xero surveyed recommend their clients plan for tax time on an ongoing basis. If you can’t manage to do that, at least get your act together before the end of the year.

Don’t:

Stuff everything in a shoebox, hand it to your accountant and hope for the best.

Do:

Keep careful records. Not keeping records up to date is the biggest mistake small business owners make, according to accountants in the survey. Good records are essential to back up claimed deductions. An app like Shoeboxed can help digitize that shoebox of receipts.

Don’t:

Use business funds to pay for personal expenses or vice versa. Often, small business owners in a hurry will use a personal credit card or checking account for business payments or put personal expenses on a business account. Commingling funds leads to confusion.

Do:

Separate business and personal expenses. This keeps your records straight, ensures your business credit rating isn’t negatively affected by any problems with your personal credit rating, and lessens your risk of an IRS audit (35 percent of audits are caused by mixing business and personal deductions, the survey found).

Don’t:

Be a stranger to your accountant.

Do:

Talk to your accountant all year long. He or she can be the most important partner in your business success. Nearly half (44 percent) of accountants in the survey recommend entrepreneurs meet with their accountants monthly.

Don’t:

Miss out on deductions you’re entitled to. Depreciation, out-of-pocket expenses, auto expenses and office improvements are the most often overlooked, accountants say.

Do:

Be honest. Excessive deductions are the number-one cause of IRS audits, the survey says.

Don’t:

Keep financial records on paper.

Do:

Use cloud-based accounting software such as QuickBooks that can simplify record-keeping, enable you to generate reports, and let you track your finances at a glance. More than half of accountants say if clients used cloud software, it would save their accountants up to 20 hours of work per tax return. That’s 20 hours of an accountant’s time you don’t have to pay for.

Basically, stay organized and on top of your accounting all year long to ensure that tax season is as low stress and simple as possible. That way you can focus your energy on the new tax laws, not on trying to unravel the mess you've made yourself.

 

Photo credit: MacXever/iStock/Thinkstock

Posted: 4/11/2014 6:11:25 PM by | with 0 comments