How Complicated Can Small Business Tax Accounting Get?

There are a variety of tax deduction and capitalization categories that make small business tax accounting extremely complicated. As a business, you will sometimes need to itemize deductions, capitalize deductions, and at times have the option to choose between the two to minimize your tax exposure.

Complications of Deductions

When you are itemizing deductions, you will need to account for every dollar with a hard receipt proving the expense was business-related. This can become complicated for some individuals who run home businesses, independent contractors or freelance professionals. Deductions are often most straightforward for a small manufacturing operation, but even then categories of deductions such as start up cost or costs of goods sold make the process challenging.

Complications of Capitalization

Capitalizing an expense can help defer the tax burden you pay this year, allowing you to spread the payment over time. Some expenses are always considered capital expenses and cannot be itemized. Other expenses may be either itemized or capitalized, and this is where the process can become more complicated. You will have to design a tax plan to help reduce your total tax burden over time. Calling in an accountant can be useful in this situation.