Tax Tips for Small Business Owners
Your first time filing taxes as a small business owner can be intimidating. The process should go fairly smoothly if you have been keeping immaculate records throughout the year and have taken the time to familiarize yourself with the tax provisions and credits that apply to your situation. However, even if you consider yourself to be an expert in tax laws, it is best to consult with tax professional when filing business taxes. If not, you risk falling into one of the following audit traps, as defined by the United States Small Business Administration.
The Internal Revenue Service states that one is defined as an “employee” if they perform services that can be controlled by their employer. On the other hand, a person can be called an “independent contractor” if their payer controls the result of the work but not what and how the work will be done. It is important not to misclassify an employee as an independent contractor in an attempt to avoid payroll taxes.
Even if you work out of your home, you may not qualify for a home office deduction. A professional can let you know if this deduction applies to you, as well as the exact expenses that are eligible.
Large deductions labeled as “miscellaneous expenses” are bound to raise suspicion with the Internal Revenue Service. It is important to itemize your deductions as much as possible.
If you are not already doing so, it is best to have separate bank and credit card accounts for your personal and business use and keep all records for both. The Internal Revenue Service is liable to flag business deductions that resemble personal expenses.