Tax season can be a frantic time for any startup. If you maintain accurate records, managing your business’s tax profile should be a year-long process. Keeping up to date in real-time makes the effort come tax season exponentially easier.
Here are 5 Common Tax Mistakes that Startups Make, and How to Avoid Them.
Incorrectly Classifying Employees: As a startup, your business may be consistently hiring new employees. Hiring employees places you in an entirely new bracket of tax complications. It’s one thing if you make a mistake calculating an employee’s payroll but it’s another to mistake calculating your IRS payroll deductions, consequences can be far worse. To avoid this, you need to correctly classify the type of employees that you hire. Are they 1099 or W2 employees? How you classify your employees will affect the tax deductions your business is eligible for.
Making Mistakes When Reporting Income: When reporting business income, the occasional error is inevitable. If you over-report or under-report your income, you are likely to get audited by the IRS. To prevent this, maintain your reports year-round. Always update your financial reports and any associated tax documents immediately. Keep detailed, accurate records of all payments sent and received.
Failure to Separate Expenses: As a startup, keeping your expenses organized is essential. Any side trips and extra mileage do not count for your small business taxes. One inaccurate expense deduction can draw your taxes into question. Don’t blur the lines between business and personal. To avoid being audited by the IRS, keep records of expenses and receipts. Separate everything firmly, with no mixing or confusion.
Filing Taxes Too Late: If you file your taxes late‚ even if you file for an extension‚ your startup can face penalties that can quickly add up. If you’re unable to pay at tax time, you can also rack up fees and interest. These will cost you significantly in the long run. To help mitigate this cost, consider making quarterly investments in advance. This can help you avoid any unwanted fees.
Missing Out on Deductions: Startups can qualify for a variety of different tax deductions. You have several allowable deductions, whether it’s a home office deduction or daily printing expenses. If you’re a fledgling business, you may be able to deduct up to $5,000 in startup costs. The amount you can deduct can depend on the type and size of your business. A qualified tax professional can walk you through your expenses to determine what is or isn’t eligible.
Additional Tax Tips for Startups
When filing your startup’s taxes, here are a few tips to help you have a smooth tax season:
- File Early: By filing your taxes early, you can avoid any fees that may arise due to late filing. This may also help you receive your tax return sooner.
- Stay Organized: By keeping your financial records straight all year, your documents will already be in order when tax season arives. This can provide a major benefit when it comes time to file your taxes.
- Ask for Help!: If you are struggling to file your businesses taxes yourself, ask for help! There are many outsourced tax services that will ensure that your filing process goes as smoothly as possible.
Whether your business is large or small, tax season can be a challenging time. Keeping organized and accurate records can help lead to a smoother tax season.
Limitless Tax Preparation & Assistance in Gilbert, Arizona.
Looking for additional help in managing your startup’s taxes in Gilbert, Arizona? Limitless Investment and Capital has recently expanded its product offerings! Learn about the variety of skilled experts we have on staff, qualified to assist your business’s needs. Rather than struggling to file your taxes yourself, focus your efforts on a piece of your business that only you can. Contact us today to get started!