With the January tax season approaching, many business owners will need to put tax preparation at top priority, especially now that the IRS announced to increase audit rates for small business owners to 50 percent this year.
To avoid raising IRS red flags and save you from general headaches when filing your taxes, make sure to avoid the following mistakes:
- Not Doing Tax Planning
A vital mistake business owners make is to rush around to file their taxes at the last minute because they have to spend a lot of time organizing their records.
With many changes in our tax policies due to the Corona Pandemic, it is imperative to proactively plan your tax throughout the year. Tax planning is essential to help you avoid mistakes in your reporting and lower your overall tax liability.
Work with a tax planning expert to help you improve your recordkeeping process and strategically utilize the new policies for your business.
- Missing out on tax deductions and other benefits.
Without an efficient process to track your business expenses you might miss out on some deductions you can claim to reduce your tax. For instance, if you have been using your car to work, you may qualify for business travel deductions. Other top deductions you may apply for include equipment, services, rent, advertising, salaries, tax depreciation, and your home office expenses. Make sure not to lose your receipts, keep your records organized and be updated on the latest tax policies.
- Delaying and underpaying taxes
Regardless of when or how you pay your taxes, everyone has to pay their obligations.
Make sure to watch for your tax filing deadlines. If for any reason, you are unable to file your business taxes, request for a filing extension. It is also important to account for all the taxes you owe. This includes self-employment tax, retirement and Medicare taxes. If you don’t pay your taxes on time or misreport your income, you may suffer penalties from the IRS.
- Not planning retirement plan
One of the smartest ways to lower your business’ tax liability is actually to set up and contribute to your retirement plans. Make sure to choose the right plan for your business and max up your contributions. This will help you take tax deductions and invest for the future.
- Not disclosing everything to Your CPA
Taxes are complicated and get changed all the time, so most business owners hire CPAs to help them in this task. The thing is, although your accountant might know more about taxes than you do, your input is crucial to get the best and timely advice for your business. Make sure to inform you CPA relevant changes to your business and your personal status. Having good communication provides better relationships and better results
If you are tired of making these mistakes and want to plan your taxes thoroughly, you may book a free consultation with us at https://calendly.com/levine-and-associates or send us an email at josh@levineandassoc.com.