Each year, millions of small business owners attempt to prepare and file their own taxes. Although this can save money on professional tax preparation, it could cost business owners in the end. Mistakes in tax filing can cost the business owner money from lost deductions or even in tax penalties and interest from the IRS.
Here are six tax mistakes to avoid if you prepare your small business taxes along with your personal tax return.
Forgetting Charitable and Non-Profit Contributions
Did your small business donate money, time, or materials to a charitable organization last year? Be sure you get full value for what you donated to a charitable or non-profit group that has a tax-exempt status with the IRS.
- Money – All monetary donations can be deducted from your small business taxes. Keep receipts from the charitable organization.
- Time – Did you offer services to a non-profit group? Your time can be deducted and calculated based upon your hourly fee rate. Again, ask a non-profit to provide you with a confirmation of time donation.
- Materials – You can also deduct any other donations, such as office furniture, automobiles, and equipment.
Home Office Deduction Mistakes
Did you include a home office as a small business tax deduction? If so, be absolutely sure that you can do so according to IRS regulations. Your home office must be a dedicated space for your business and not used for any other purpose. Also, it must be the primary place you conduct your small business activities.
If you can qualify your home office as a small business tax deduction, don’t forget to take the full deduction amount. Not only can you deduct your mortgage or rent in proportion to the square footage, but also utilities, property tax, maintenance, renovation, and dedicated phone or fax line.
Poor Math Calculations
One frequent tax mistake that some small business owners make is in the actual mathematics of all the deductions and income calculations. However, most math mistakes can be avoided by using a tax software program. Good quality tax software helps you complete all your deduction items, and it will do all the adding and subtracting for you.
Incorrect Business Tax ID
Generally, your small business tax ID is your own personal Social Security number. Be sure you enter it correctly or you could face penalties for delayed filing. Also, be sure you provide your accurate tax ID or Social Security number to all your clients who may send you a 1099 form for independent contractor work.
Don’t forget to sign your tax return. If you file online, you will be asked for an electronic signature. However, if you do need to mail in any IRS forms for your small business taxes, always sign at the bottom.
The annual tax filing deadline is April 15. Don’t be late with that date, or be sure to request an extension beforehand. If you are self-employed, you will need to file quarterly tax returns in addition to the April 15 deadline.
Taxes are an inevitable part of American life. However, with these tips, you can avoid costly mistakes and stay in the tax man’s good graces.