I post tons of helpful articles that I find around the web to help you all move your businesses forward. Often, people write asking me to elaborate on those articles so I have started a series that will do just that. I may combine a few or leave a few out here and there, but I will cover the topics that people asked me to elaborate on.
I recently posted an article from Entrepreneur about common financial sins entrepreneurs make. The next of the big financial sins is not getting your tax game in order.
Taxes are pretty much the bane of everyone’s existence, no matter what they do for a living, and they’re even more complicated and more of a headache for entrepreneurs. With so many moving parts in the business and the way you report the income it generates, it can be quite a bit more complicated to file your taxes if you’re a business owner than it is for someone who just has a W-2 and no other sources of income. Of course, my advice is always to make sure you speak with a qualified tax professional, well in advance of tax season, to make sure that you have everything in order. In the meantime, however, here are some of the most common tax mistakes that entrepreneurs make and you should avoid:
First up is choosing the wrong business entity type. There are tax implications for whatever business entity type you choose, so make sure you know what they are before you choose how to structure your business and that you comply with all of the requirements for whatever type of business you do choose. Again, I recommend you speak with a qualified professional before making any decisions that will affect your tax obligations, but if you just need a quick overview of the different entity types and what their benefits and drawbacks are, you can check out my old video on the topic by sticking around to the end of this video or heading over to CateCosta.com to grab the link.
Another major mistake that all too many entrepreneurs make is just being sloppy with record keeping. I’ve talked about this before and it’s pretty self-explanatory so I won’t go into detail here but, of course, if you make a mess of your books you’re more than likely going to make a mess of your taxes as well.
In line with not keeping your records in order is not staying organized about your deductions. Many entrepreneurs either over- or under-utilize the deductions available to them by doing things like not claiming the home office deduction, even if they have a home-based business, or deducting the full price of meals or entertainment when only 50% is allowed.
Mis-classifying workers is another big issue that the IRS is cracking down on, so much so that I have talked about it in a couple of different videos. There are strict rules about who can be classed as a contractor and who must be considered an employee. Stick around until the end of the video or head to CateCosta.com to get a link to another video of mine and learn the basic differences, but also make sure you get professional advice and are following the rules.
Finally, remember to pay attention to details and not over or under state your income. You would think that would be obvious, but it’s far too common for business owners to accidentally include sales tax they collected as part of their income or to not match the 1099s they receive from clients whom they’ve provided services to to the income they claim on their own returns.
And of course, the silliest mistake that is all too common among business owners: missing the filing deadline. You know all year that taxes are due. Don’t uselessly accrue failure to file penalties. Just make sure you’re on time, every time.
You don’t want to get stuck in an expensive and time-consuming dispute with the IRS, so be sure to get the professional advice you need and follow these tips to make sure you don’t mess up your business’ tax filings.
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