Tax code complexity generates a lot of confusion and myths surrounding small business taxes, which is why we’ve compiled a short list of the most common misconceptions.

You can take more deductions if your business is incorporated

Thankfully, self-employed people qualify for a number of the same tax deductions that incorporated businesses do, so it’s not necessary for small business owners to be burdened with the cost of becoming incorporated. For example, start-ups can spend thousands in accounting and legal fees in order to set their corporation up, only to realize shortly after that they need to change the name or the direction of their company. Many owners of small businesses that choose to incorporate also end up not making any money in the first few years of running their business and end up being burdened with minimum corporate tax payments but no income.

Start-up costs are immediately deductible

Business start-up costs are the expenses that you incur before your small business actually begins operation. These costs can include both organizational and start-up costs and alter depending on the kind of business you own. Examples of start-up costs include travel, training, surveys, and advertising, which are generally referred to as capital expenditures. The costs for certain assets, such as office equipment or machinery, are recovered via Section 179 expensing or depreciation. When you launch your business, you can choose to amortize or deduct your start-up costs.

Audits flag home office deductions

Home office deductions used to be red flags for audits, but this is no longer the case. In fact, in 2013, the IRS launched a simplified home office deduction which made it simpler to claim it. Because home offices are so common, tax officials are not able to audit all small business tax returns from owners taking their home office deduction. There’s no need to worry about an audit flagging your home office deduction, but you should be careful to ensure that you don’t have a high ratio of deductions to income.

If you’re a business owner in San Diego and are in need of a CPA, get in touch with our team at Abbo Tax CPA today.