There are a lot of types of common mistakes that new businesses make. But perhaps the area in which mistakes are most common are found in business tax.
Unfortunately, this is also where a lot of the most severe mistakes can be made.
If you’re making mistakes with your business tax, then you could be putting your entire business in danger. You may end up underpaying, which will see the IRS come down hard on your business.
You could also see yourself overpaying, costing your business thousands. Don’t make these mistakes with your business tax!
So here are a few mistakes that you could be making, some obvious and some not so obvious.
#1 Not Paying It
Too obvious? Okay, moving on.
#2 Getting Setup as an Incorrect Business Type
This is a surprisingly common mistake for startups to make. When they set up their business and start getting things set up with the IRS, they make mistakes when categorizing their company.
If you’re a sole trader, make sure the IRS know that. If it’s a limited partnership, a nonprofit, a subsidiary, or any other type, make sure you file it as just that.
Otherwise, you may end up getting taxed less or more than what you actually owe. Another big mistake: filing as the wrong type of corporation. Many new businesses file as a C Corporation, resulting in massive taxes.
Small businesses are better off as an S Corporation!
#3 Not Deducting Startup Costs Properly
Contrary to popular opinion, the IRS will occasionally give you a break. In the case of new businesses, you can have your startup costs deducted, relieving you of quite a lot of tax.
However, how this works is often wildly misunderstood. Basically, the expenses you incur before your first sale are considered startup costs.
You cannot get startup costs deducted until you achieve that first sale. They’re then deducted over the next fifteen years, or until the business closes.
It’s not the easiest thing to understand, but it’s important that you do.
#4 Neglecting to Work with a Tax Attorney
Whether or not there’s a problem, a professional tax attorney is an extremely valuable asset.
A lot of businesses make the mistake of assuming that an accountant or financial controller will have all the skills to deal with tax problems.
But even if they did have all the necessary skills, it’s also about having a certain amount of legal reach. If you run into any problems with the IRS, it’s best to consult with a tax attorney who specializes in business.
#5 Forgetting about Certain Limits
It can seem like a dream come true when business owners learn that food and entertainment costs can be deductible. At the end of the day, it makes perfect sense.
These things are necessary for a business to run with maximum productivity, after all! But that dreamy feeling can often come down fast when business owners find that the IRS are on their backs for deducting those costs.
So what was the problem? The IRS are only willing to let you deduct half of the costs of food and entertainment. Remember: don’t deduct 100% of the costs, because only 50% of the costs are deductible!
Personally I’ve made a few of these mistakes and I’ve luckily been able to get past them and share them with you so hopefully you don’t make these mistakes.
So have you made any of these mistakes when it comes to business taxes? Feel free to share your story, and comments below.