Many small business owners are filing taxes for their enterprise for the first time this year. There is a lot to know, and a number of different factors that will make your small business tax situation unique. Knowing how to file your taxes properly can save your company money and keep you safe from making illegal tax mistakes. Keep reading below for a list of some of the most common mistakes you should try to avoid.
Mistakes That Set Off Alarm Bells at the IRS
- Hiding your income: If your business is cash-heavy, it could be tempting to not report a large percentage of your earnings. The IRS knows when companies are likely to have a large percentage of cash purchases and can find out if you are underreporting.
- Writing off startup expenses as deductions: Starting a new business will cause you to spend lots of money traveling to meet partners and clients, hiring attorneys and new employees, and buying equipment. Only $5000 of startup deductions are allowed for before actual business starts. Over $5000 any expenses must be depreciated over 180 months. Keep in mind that travel, entertainment, and meal expenses are the most likely to be investigated by the IRS.
- Writing off hobby expenses: Let’s say that you make art magazines and sell a few of them to your friends and family near Christmas time every year. That money you spent on art supplies and a new computer for graphic design programs should not be written off as an expense because your company isn’t really trying to be a company, no offense. The IRS needs to see reported profits, and have a sufficient reason to believe you will continue to turn a profit.
Legally, small businesses do have the right to make a large amount of tax deductions, but small business owners sometimes go too far with them, and risk getting in trouble with the IRS. Don’t put all the hard work you have placed into your venture in jeopardy.
The New Jersey small business lawyers at Garland & Mason, LLC know what it takes to start a new business in New Jersey and can service all your business needs. They are tax experts who can spot tax issues before they become a problem.