With 2016 quickly coming to an end, it’s quite common for small businesses to review their tax and financial documents around this time of year. Many of you may have to file with the IRS as early as January, so it’s best to get ready at least before the holiday break.
While preparing for the upcoming tax season, there’s unlimited amount of tax advice for small businesses you can find on the Internet – some great, others not so much. To avoid the risk of IRS fines or penalties, here are five “tax tips” you should think twice before using.
1. Maximize Deductions with Business Spending
As the end of the year approaches, you might be enticed to crank up your spending habits to drive deduction claims and decrease your tax bill. Before going all out, think about the long-term effects of these additional expenses. Buying new equipment or an advertising initiative will cut down tax liabilities, but if those costs hinder your company from paying bills the next month, you’re taking more of a financial loss than gain.
2. Claim Car, Meals, and Home Office Expenses
It’s perfectly reasonable for you to claim travel expenses, meal costs, and a home office as a business expense; however, the caution lies within claiming expenses that are unqualified. The IRS states you can only deduct vehicle costs for business use.
You can claim up to 50% of meals and entertainment costs for business purposes and claim costs for maintaining a room in your house dedicated specifically to conduct business. The point here is that personal spending is prohibited – these are costs charged to your company. And be prepared to provide evidence with receipts, the business purpose of each cost, and who might have been with you when making the purchase.
3. File All Employees as Independent Contractors
Rumor is that reporting employees as independent contractors saves money on payroll taxes. While this may or may not be true, facts show that it leads to penalty fees and interest charges as well. The IRS clearly states which of your workers are considered regular employees and which are independent contractors. Once the IRS finds out, you could end up paying a lot more than what you were trying to save.
4. Avoid Claiming Deductions At All
There is such a thing as being overly cautious, and in this case, it could prevent tax claims that you’re entitled to have. Fears of possible audits shouldn’t deter you from claiming legitimate deductions. You can always seek assistance from a tax professional or CPA about which claims you’re eligible to file.
5. Wait Until Tax Season to Worry About Taxes
If you follow this “advice,” you probably wouldn’t be reading this blog at all. We understand that the daily operations of running a business take hard work and lots of time, but federal taxes are also an important aspect of owning a small business. Tax preparation is never a one-time event. Successful, less-stressed business owners know to plan throughout the year to have a smooth tax season. At the very least, consider outsourcing to a tax firm if necessary.
If you need more time to file for your small business, e-file IRS Form 4868 with ExpressExtension.com – you can get approved quickly and easily for a 6-month extension to file income taxes; larger companies are eligible to submit an IRS Form 7004 tax extension. You won’t even need to step away from your operations – download our FREE Express 4868 or 7004 mobile app and conveniently e-file anywhere using your iOS or Android device.
Call our U.S. – based support team for questions or help with your e-filing experience at 803.514.5155, Monday through Friday from 9 a.m. to 6 p.m. EST – send us a request via email with [email protected].