After saving up for years and working long hours, you finally have enough money to start your small business. Starting a small business can be one of the most challenging to endeavors to embark on, and the constantly fail or go belly up after only a few years of opening. Bad location, poor management, or any number of reasons can cause a small business to fail. One of the most common reasons is due to filing errors on tax returns. Don’t let simple filing mistakes take away your dream business; here are some of the most common ways small businesses fail to file their tax returns correctly—as well as a few helpful tips for saving money on your taxes—so your new company has a better chance to withstand the test of time.
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Pay in Full and On Time
It might surprise you, but one of the most common mistakes that emerging small businesses make is failing to file their taxes on time. Don’t fail to file because you aren’t turning a profit and fear being able to pay your tax bill. The IRS penalties are much steeping for failure to file than failure to pay.
Don’t Overpay for Healthcare
One of the biggest expenses small businesses face is the relatively new tax requirements surrounding healthcare. If your business is still new and fairly small, you might qualify for the healthcare tax credit. If you have fewer than 10 full-time-equivalent employees with wages that average under $25,000 annually, you may be able to qualify for this handy tax break.
Be Careful About Using Home Office Deductions
Most small businesses start in a home office. Gary Erickson started an organic energy bar company in his dad’s garage and it grew into Cliff Bars, one of the most successful energy bar companies in the world. If your business is still operating in a home office, you can deduct a huge portion of your expenses—but be careful. One of the IRS’s biggest red flags is home office deductions. If you don’t have the time or patience for an IRS audit, a great way to avoid any problems is to take a flat rate deduction of $5.00 per square foot of your home office. You might not save as much you can with a specific itemized list of deductions, but it could save you a lot of time and energy better spent on growing your business versus fighting an audit.
If You Get Behind on Your Taxes, Handle it immediately
When you first start your small business, a lot can go wrong. Unexpected costs pop up and you might find yourself forgoing taxes to replace a broken oven or financing materials for production. For example, Jim Meyers of Meyer’s auto shop in Houston, needed to replace hydraulic lift in his shop and the cost was so high, he got behind on his taxes. Fortunately for Jim, Houston back tax help was readily available and he was able to solve his problems with the IRS. If something like this happens to you and your business, don’t hesitate to get help with your back taxes. By leaving taxes unchecked, they can destroy your small business.
Many small business owners don’t know that you can file deductions for technology. If you spend $10,000 on new computers, printers and office supplies, you can deduct a large percentage of these items. The rules for these deductions change annually so be sure to keep up on what can and can’t be deducted. This information is located under section 179 of the tax code.
Moving Costs and Expenses
It’s common for your small business to move locations in its first years of development. As your company grows, so does the need for more office space. As your company moves, keep track of all of your moving expenses. Anything from gas to moving companies can be deducted from your return. A complete list of what can be deducted from moving expenses can be found here.
One of the biggest traps of starting a small business is mixing your personal expenses with your business expenses. It might seem easy for the lines between the two to get blurred. If you buy pizza for the office and take the rest home for the family, is that a violation? It might seem like a silly and frivolous example but it is, in fact, a violation. A great way to avoid any possible violations is to have separate financial accounts. Keep your personal banking and credit accounts as far away from your business accounts as you can. The IRS takes no prisoners when it comes to spending company money on personal expense. Use your best judgment and don’t hesitate to seek out professional advice.