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There are a number of small business tax breaks available to stimulate the growth of new and small business ventures. These include everything from government reimbursements for green energy investments to small business loan interest rate deductions. The wisest business owners will look for breaks wherever possible to lower their taxable income. As long as you are earning more than you are deducting, you can continue to file for breaks. Avoid these mistakes to ensure your breaks actually pay off.
#1 Poor Planning
Tax planning is confusing for most small business owners. Many speculate whether the IRS code is designed to be confusing, requiring an excessive amount of paperwork to file for any tax break. However, you can reduce the confusion of filing for a tax break by planning for the break first. Research the tax programs that you may be eligible for long before you file for them. You will find there is always an easy way to claim the break, and there are some elements that may make filing far more complicated. With proper planning, you can avoid some complications.
#2 Lack of Documentation
Since you know which tax breaks you want to declare from the beginning, you know all the paperwork you will need going forward. This is extremely useful when it comes to documenting appropriately. Make a checklist for the items you need to document throughout the year. Keep receipts or copies of forms for your files, and make additional copies to hand over to your accountant at the end of the year. If you do this upfront, you will have an entire tax file ready to go when the time comes to submit your forms. This makes tax time far less stressful for you and allows you to hand over your documents early.
#3 Hasty Filing
Handing over documents early is critical. If you are hasty with your filing, you may omit critical elements that will qualify you for a tax break. Furthermore, some small business incentive programs have limited availability. The state may only offer a certain number of credits for small business green energy improvements, for example. If you wait until the last minute to file for yours, you may miss out on the opportunity to capitalize on the free money to improve your business. Get an early start to keep this from occurring.
#4 Reliance on Substandard Accountants
Any accountant that you use has the ability to keep your business protected from audit or expose you to tax liabilities. This is the power of an accountant when it comes to complicated tax filings that you may not personally understand. It may sound attractive to choose an accountant who promises big returns. However, especially for a business, picking an accountant that promises accurate returns is a better idea. If your business goes through an audit and bad accounting is exposed, your public image can be permanently damaged, in addition to other penalties. You will owe finance charges to the IRS, and you may even lose your business licensing.
