Ensuring you aren't making any errors when filing your taxes is critical for many reasons, not the least of which is that it can help your bottom line.
Small businesses around the country are reeling in the wake of an economic shutdown and ongoing riots which seem to make achieving profitability and stability a total impossibility. Entrepreneurs everywhere are scrambling to ensure the longevity of their brands, but in doing so they're not always taking much-needed steps to guarantee that they're making the most out of their tax situation. Costly tax mistakes can normally be harmful to your business, but right now they could be enough to push you into bankruptcy, which is why it's imperative to get your taxes done early and correctly in this day and age.
That's often easier said than done, especially when you don’t know which common errors to be on the lookout for. Here are 5 small business tax mistakes to avoid, and how to capitalize on your financial situation despite ongoing disruptions.
1. Cash-only businesses fail to properly report their income
If you're a cash-only business, which means that your company mostly takes cash payments instead of debit, credit card, or other payment options, it's of the utmost importance that you properly report your income level. Few small business owners want to deliberately mislead the IRS about their income level, largely because they're smart enough to realize that doing so can get them in some serious hot water. Even if you have the best intentions, however, it's still easy to accidentally report an incorrect level of income to the IRS which leads to an audit of your business.
To avoid this possibility, you should be taking steps to ensure your income reports are clean and tidy. The IRS is mostly interested in cash-only businesses and actually audits them more commonly than any other type of commercial operation. You should know what the IRS looks for in cash-only businesses so that you can properly report your income levels and avoid any legal troubles. Sometimes, hiring a tax specialist can guarantee that you get this process right, but responsible and financially-savvy business owners can do this on their own if they put in the right amount of time and effort.
If you're a cash-only business, meticulously record every transaction you have and know how to prove that you can support your lavish lifestyle if the IRS comes knocking. Next, you should be aware of…
2. Not claiming disability tax breaks that you qualify for
Did you know that the IRS offers serious tax breaks to business owners who hire disabled employees? Many brands hire disabled professionals because of the immense set of skills they bring to the table, but they forget in doing so that they can qualify for tax breaks which will eventually add up. The IRS has a helpful webpage about tax benefits that your business may qualify for if you've tried to ensure it's accessible to the disabled and partially operated by disabled professionals.
Removing architectural barriers that would otherwise prohibit disabled individuals from accessing your business isn't just morally righteous, but also financially prudent. By taking steps to ensure that everybody has access to your brand, you’ll help your small business save money on taxes that can be put toward productive purposes elsewhere.
3. Entrusting your records to a lackluster employee
If your business isn't keeping meticulous tax records, it's preparing itself for a legal and financial nightmare in the days ahead. Many small business owners are incredibly busy with the development of their brand or the expansion of their operations, and thus delegate the handling of business tax records to a lower employee. Doing this can be helpful, insofar as it saves you time and energy, but it can be incredibly risky if you entrust the wrong worker to look after your tax records.
Tax specialists have argued that by saving your records you can avoid tossing out receipts or other information which may end up saving you huge sums of money when you file your taxes. If you delegate the management of your tax records to a lower employee, ensure they're up to snuff and know which records to keep ahold of and which to part ways with.
4. Not filing for HVAC tax rebates
The federal government wants small businesses to be as energy-efficient as possible. This ensures that our environment remains habitable while also fostering a sense of responsibility in the nation's entrepreneurs. Local energy companies, too, offer rebates to businesses to usher in the exact same outcome. In an effort to help small businesses become as energy efficient as possible, some local energy providers have actually created HVAC tax rebates which you can qualify for after taking a small number of steps to improve your business' energy efficiency.
If your business installs geothermal heat pumps or invests in solar energy panels, it may end up saving a nice chunk of change when you next do your taxes. Fail to pay attention to savings opportunities like this, and your company will soon be beset by financial difficulties. The Department of Energy has a helpful webpage that instructs small business owners on how to save money on their federal taxes by investing in the future of green energy. You should review this to ascertain whether you qualify or can take steps to qualify in the near future.
Besides saving money on your taxes, investing in renewable energy is also great for small businesses because they can use their environmental concerns for marketing purposes. Local customers care about their environment and want to support businesses that refuse to pollute the air. Make sure that customers know about your installation of solar panels or reliance on other forms of renewable, sustainable energy, and your brand will be elevated in no time.
Abusing deductions can cost you huge sums of money
Most business owners understand the importance of securing tax deductions, which has led some nefarious entrepreneurs to write off absolutely everything that they can, even when it’s inappropriate to do so. Despite all of the arguments that you should deduct as many things as possible as business expenses, abusing the deduction system provided by the IRS can land you in serious trouble. This is not to say that you shouldn’t pursue tax deductions, but rather to note that doing so in an overzealous fashion will end up costing you the exact same money that you wanted to save in the first place.
Meals and entertainment can be written off as tax deductions if they proved essential toward the prosperity of your business, but don't let this opportunity get to your head. If you start writing off every possible meal or entertainment venue that you visit, the IRS is going to come knocking with some difficult questions. Avoiding an audit is of the utmost importance for any company, but small businesses in particular should know that a costly visit from the IRS may be the only thing needed to force them into an untimely declaration of bankruptcy.
You should definitely set some time aside to review common tax deductions, but know all the while that deducting too much too frequently will not be worth it. Many small business owners get intoxicated with the notion that they can write everything off, which is a disastrous mistake that can imperil the future of your business. Know that your employees, too, maybe deducting things which they shouldn't be. Informing all of your workers on how to properly claim deductions without going overboard is this highly recommended.