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Finding good small business tax help can be very valuable when it is time to file your year-end small business taxes. Many small business owners make several mistakes when it comes to their taxes. Here are a few common mistakes that are made with small business taxes.
1. Ignoring Gift Rules
Many small business owners turn to giving gifts as a way to build business relationships. Whether they are trying to land an account or just get to know a strategic partner, there are a number of applications where a gift can make a difference. However, many small business owners misinterpret the IRS rules on gift giving deductions.
According to the IRS, you can only deduct the first $25 of gifts to anyone from your business. Therefore, if you give someone a gift worth $4000, you can only deduct the first $25. Many small businesses will go to their accountants and tell them that they had $3000 worth of gift deductions. When you can only deduct $25 for each client, this means that you are claiming you gave gifts to 120 clients. If you are a small business, the IRS will consider this a red flag and question you on it.
2. Not Tracking Reimbursements
When you own a small business, it is not uncommon to pay for many of the miscellaneous expenses out of your own pocket. For example, you might be at the store and realize that your office needs copy paper. You just pay for it with your groceries and bring it to the office. While there is nothing wrong with this, you should keep track of these expenses and get reimbursed for them. If you choose not to be reimbursed for the expenses, you can deduct the expenses on your personal tax return and lower that tax burden as well.
3. Not Saving Small Receipts
Many business owners have heard that you do not have to save actual receipts for expenses that are less than $75. While this is technically true, saving a receipt is going to be much better than the alternative. Even if you do not save the receipt, you are still going to have to provide some type of information to the IRS about the expense. You will have to know how much the expense was, where you spent the money, what the circumstances were. If you do not keep the receipt, you are going to have to keep a separate log with all of this information. A receipt can provide all of that information and will be much easier to keep track of.
4. Combining Equipment and Supplies
Another common mistake that many small businesses make is combining their equipment and supplies together. Equipment should be treated as a capital expenditure. As such, it is entitled to depreciation along the way. Many people just include computers and furniture in supplies and do not list it as equipment. This could result in you losing your deduction for this all together.
