The signing of the Tax Cuts and Jobs Act the end of the year ushered in several changes to the US Tax Code. Even though tax day comes at around the same time each year, many companies still scramble to get everything in at the deadline since going through receipts, bank statements, and other documents can be a time-consuming and tedious affair. Proactive tax compliance can often make tax preparation a less-stressful affair. In addition, avoiding these four tax mistakes can save you time, money, and stress over the next few years.
Tax Mistakes That Can Cost You Dearly
Trying to figure out the ins and outs of the tax code can be a challenge for businesses, especially if they are focused and working hard in their everyday endeavors. Here are some of the top tax mistakes your company is probably making, and how to avoid them for the future.
- Not Paying Taxes On TimeIt might seem like it’s pretty easy to get everything in on time, but the IRS says about 20% of people still wait to file a week before the deadline. Not filing an extension if you are late will cause you to incur penalties that can really add up fast. Businesses who are right on the deadline should seek a filing extension in advance of the filing deadline. Just as importantly, you will be penalized and assessed interest charges by the IRS if you fail to pay your taxes when due even if you received an extension to file your return.
- Improperly Deducting Startup Expenses It is important to understand the rules for deducting startup costs are different. A lot of businesses think they can write off everything, but startup costs are not able to be deducted until the business has its first sale. You are only allowed to deduct $5,000 in the first year of a business if the total costs are under $50,000. Make sure to hold on to all receipts and other proof of purchases so you can keep track of what expenses could qualify for a deduction.
- Trying to Mix Business and Pleasure to Get DeductionsA lot of businesses are usually very excited to see all of the things they are able to deduct. However, some start to blur the lines between work-related and personal expenses, which can quickly draw the ire of the IRS. Make sure to keep separate business and personal accounts and do not be tempted to try and pass off purely personal expenses as something related to your business.The IRS usually takes a hard look at expenses that have to do with travel, entertainment, and food. They do give a deduction option for those who use part of their home as an office or workspace, but the area must be used for work only. Entertainment and food expenses are no longer deductible after 2017 perhaps because of IRS skepticism regarding the business purpose of such type expenses.
- Hiding IncomeThe IRS is always searching for companies that do a lot of their business with cash because they know that these types of entities often under-report their income. Make sure to carefully keep track of all income and expenses and always report all of your business income. The IRS has no problem coming in and auditing companies and you could be subject to a range of penalties if they start to find discrepancies.
Why You Should Care...
Any of these tax mistakes will give your company some headaches during tax season. Working with an experienced tax attorney is a great way to make sure that everything is filed correctly. A skilled business tax planning attorney will also be able to review your financial statements and give advice about deductions and strategies that may result in a lower tax bill. Schedule a consult with taxation attorney Stephen Thienel today. Mr. Thienel has decades of experience assisting clients with their tax planning needs throughout, Maryland, Virginia, and the District of Columbia.
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