Tax preparation is a process that requires one to be careful since it is quite easy to make some mistakes. This is the reason that businesses are requested to hire a professional accounting firm to help them with auditing and any other activity that involves accounting in the company. If it is your first-time to prepare tax for your company.
Here are five common mistakes that you can avoid making in your preparations.
1. Failure to properly deduct the start up costs.
Most business owners tend to deduct their start-up costs even before they make their first sale but this is highly discouraged. The startup costs are all the costs that a business incurs when starting up a business. They include rental fee, license registration, buying of the office equipment and so on. The expenses that you incur during the period should be divided and deducted in different portions which should take about 15 years to complete. If you are not sure about how to deduct these expenses, collect all your receipts and check with the IRIS so they can advise you how to deduct the costs or if you are qualified for the deductions as well.
2. Not paying tax on time.
If your business fails to pay their tax on time, the IRIS usually records a 0.5 percent of your tax deduction as the penalty. So, imagine if you fail to pay the tax in a row how much you will have to pay in a year. To avoid such mistakes, file your returns on time and if you are not able to do so, request for time extension to prevent the unnecessary taxing.
3. Choosing the wrong business structure.
This is another common mistake that is made by small business who are starting off. If you record your business in the category of the corporation, you will be taxed twice which can be unfair if your business is not even doing well on the market. So, to avoid this mistake and to ensure that you get a fair taxing according to the size of your business, research about the available business categories and choose the one that is within your business league.
4. Mixing your business with personal needs.
Even if you are operating your business on your own, it is essential to learn about where to draw the line between the business needs and your needs as an individual. Spending the business’s profit for your uses can give you massive problems when calculating your tax returns. If you are going for lunch, don’t use the business’s money to buy your friends lunch and the same goes for a salary. Set a salary for paying yourself every month and deduct tax too. If you can’t control the expenditure of your company, find a good accountant from tax preparation washington dc company to hire for these services.
5. Not taking advantage of medical expense reimbursement plan.
This is a good plan for those who are working with family members in the same company. If you work with your spouse, MERP can help you reduce your medical expenditure when you go to the hospital. This is because the plan allows you to pay for your employees without worrying about being taxed. So, make sure to include all your family members together with your employees to the program to avoid getting taxed for medical bills.
Save up your expenditure and ensure that your accounting books are running smoothly by avoiding the above common mistakes that people make when preparing for their tax deduction. Work with an experienced accountant so they can give you the right advice.