This is the third in a three-part series discussing tax strategies for businesses and business owners.
Mistakes are a part of life. We all make them. Learn from them and grow from them. And try to avoid repeating them. As a new business owner, it is not uncommon to make mistakes when preparing one’s first tax return. By learning from the mistakes of others, you can turn your inexperience into a strength by doing things the right way from the get-go.
Here are a few of the most commonly made mistakes made by small business owners in preparing their taxes:
- Not tracking all reimbursable expenses – Whenever possible, try to pay for expenses out of a company bank account or corporate credit card. If you must pay in cash, keep a detailed accounting of these receipts so that “your company” can reimburse you. If you forget to track these expenses, you may not be able to recoup all of these expenses on your personal return
- Overstating your deductible business gifts - You may be the most generous small business owner in the world, but play it close to the vest for uncle sam. Don’t claim $6000 in gifts if you’re not prepared to prove it. Excessive gift deductions is a common red flag that can put you right in the crosshairs of IRS examiner. Stay off the radar. As a new business owner, you do not want to invite more scrutiny than you absolutely have to.
- Dot all your i’s and cross all your t’s: Respect the sanctity of your first tax return. Make sure your social security numbers and tax identification numbers are all accurate. And then double-check it again. Check your math. With a calculator. Not in your head. And don’t forget to sign your return. Once completed, send the return by certified mail. Lost in the mail goes right up there with “the dog ate my homework” on the Mount Rushmore of excuses.
- Don’t be afraid to ask for help – Find a good tax professional in your area who you trust. Don’t make unnecessary mistakes just because you think you can do it all by yourself . Live to fight another day.
This is the second part in a three-part series exploring tax-saving strategies for businesses and business owners
Did you start a new business in 2007? Or take over an existing company or franchise? If so, in the next few months, you are going to have to deal with your first-ever business tax return. For many new business owners, this process can be intimidating, stressful and fraught with peril. How can you avoid this potential headache come tax time? By being prepared. That’s how.
One of the best ways to prepare is by working with a CPA or tax professional. Aure, you can complete your business taxes on your own, but why risk making a critical mistake when you don’t have to. You may even be tempted to purchase one of the many tax preparation software packages available on a retail basis. But you wouldn’t perform surgery on yourself (even if you did stay at a Holiday Inn Express), would you? If you can afford it, leave the heavy lifting to a professional. Don’t let your ego get in the way of doing the absolute best that you can for yourself financially. Bite the bullet and find someone competent that you can trust. A good account should not be very hard to find. Check with your local Chamber of Commerce or CPA association for a referral. Or ask a friend or colleague to recommend a professional.
According to a recent Kiplinger’s article, you should try to keep the following items handy when preparing for your inaugural business tax return.
- The previous year’s business tax return — This would be especially helpful for those who may have purchased an existing business or participated in a change of ownership at their current company
- Articles of incorporation
- Partnership agreement
- Accounting records — This may seem self-evident, but these documents are the very basis of your tax return. Whether you are using a software package like Quickbooks or keeping an accounting ledger by hand, it is critical to keep these records organized and accessible
- Bank Statements — These are usually a good failsafe for any income/expense accounting that you may already be doing
- Credit Card Statements — These statements will usually catch all the day-to-day expenses that fall through your record-keeping cracks. Many credit card companies (like American Express and Visa) provide a complimentary year-end summary statement for this very purpose
- Payroll Reports
- Details of Assets Purchased — This will help you determine potential deductions and depreciable assets
- Depreciation Schedules
- Detail of Asset Dispositions — If you sold any equipment or business-owned property during the previous year, you’ll need to have accurate cost basis and sale information to calculate any capital gain or loss
- Vehicle information — Keep all your mileage and gas receipts
As the familiar adage goes, an ounce of prevention is worth a pound of cure. Get organized while you still have the time. Don’t give in to the temptation to procrastinate. Stay ahead of the game and always be prepared for what lies ahead. Your accountant — and your bottom line — will thank you.
