Welcome to this week’s installment on business taxation! Head over to our Youtube channel and check out this article from Small Biz Trends to learn more.
In this week’s tax segment, there aren’t a lot of developments that can be discussed in just a few minutes. There are always tax developments, but we thought we’d cover common mistakes made by many small businesses in their tax planning. You’ve always got to be thinking about tax planning in addition to everything else you’re doing to run your business.
The top mistake is actually misreporting your income. They actually list: misreporting, failing to report, and overreporting. But we think “misreporting” actually captures it all. When it comes to misreporting your income, assuming you’re not just engaging in tax avoidance from the get go, you can misreport by not following a proper cash accrual method or by not being consistent with that. Or you might actually just misreport it because not every cash receipt you get is necessarily income. We actually fin people over-report income more often than not, due to some basically bad accounting practices.
Mixing personal and business finances. This is very common among small business onwers. Proper accounting practices are to set up separate credit cards. Use one credit card for personal. Use one credit card for business. Don’t ever mix those. If you need money out of your business, well, there’s absolutely nothing wrong with that. Write yourself a check, and put it into your personal checking account, and deal with that. Don’t pay your mortgage out of your business account, and so forth.
Small businesses fail to keep a proper mileage record, especially for vehicles that are used both personally and for business. That’s a requirement. You’ve got to do that. That’s one of the first things the audiotors ask when they come knocking on the door.
A lot of people think that taking the home office deduction is a red flag. It is not. There are rules to be followed, and you can benefit from it on your tax return if you do that.
A lot of small businesses aren’t utilizing retirement plans. Many think they can’t afford it, but we think you can afford it a lot sooner than you are thinking.
A long term one that a lot of small businesses don’t do is keeping proper basis records. When you own an asset, you’re not thinking about selling that asset. When you’re building your company’s stock, you fail to keep really good records of how much money you’re actually putting into your business. These are things that won’t come to haunt you until 10-20 years down the road, but as business people, we’re supposed to be thinking that far ahead.
There are many more of these on the list, so take a read of the article we linked above. It should get you think, and we’d love to help think with you. Reach out, book some time with us, and we’ll see what we can do together.