Taxes get more complicated for most businesses than they do for individual taxpayers. And not knowing the laws applicable to you is not a justified reason to not comply. Here’s a guide to debunking common myths about business and taxes.
When first going into business for yourself—no matter how small—most seasoned business owners will tell you right away the first thing you need to do is to find a professional to partner with you on taxes. A lot of these people learned the hard way and are trying to help you avoid the same mistakes. We’re here to help. So give us a call and get on your way to keeping as much as you deserve while meeting all of your legal obligations.
Myth 1: A Home Office Deduction Likely To Trigger an Audit
Prior to the Digital Age, not near as many people worked from home as they do today. As a result, having a home office deduction is no longer a red flag. Also, with so many home office deductions being taken now, the IRS doesn’t have the bandwidth to audit every return claiming a home office deduction.
It’s important to keep accurate records though as well as ensure that deductions you take are legitimate.
Myth 2: You Can Delay Payment by Filing an Extension
You are still required to make a payment for taxes by the due date and will face penalties if you file an extension—however the penalties are not as severe as simply failing to file by the deadline.
Myth 3: You Can’t Have a Self-Employment Pension Because You Have Side Job
Even if you have a full-time job, you can have a self-employment pension. This can be in addition to your 401k at your salaried job.
Myth 4: You Can Take More Deductions If You Incorporate
Those that are self-employed and established as a Sole Proprietor, Single Owner LLC or S Corp are actually entitled to an almost equivalent amount of deductions that Corporations are entitled to.
In fact, for many small businesses, incorporating isn’t necessary and is entered into prematurely. This ends up weighing down owners with legal and red tape debt that could be spent as an investment in the business instead of a costly expense.
Myth 5: You Can Prevent an Audit By Overpaying
Overpaying on taxes makes it look like you were careless in preparing your taxes. Also, if they see an overpayment, they may audit you to see if you paid less than you owed in another area. The best way to deter audits is to keep good records and report accurate returns.
Myth 6: You Can Claim Startup Costs Right Away
As of 2011, you’re able to deduct $5,000 in startup costs and $5,000 in organizational costs. The startup costs can not have taken place prior to October 22, 2004. These kinds of costs are equipment, computers, travel and advertising. After you exceed the $5,000 deduction, through amortization, you can deduct up to $50,000 of startup costs.
Hire a Professional
The best way to feel the most secure about complying with the law is to hire an experienced professional like us to partner with you so can focus on your core business. Tax law is our core business. We’d love to help.