Many business owners experience challenges when preparing their company taxes, and it’s easy to see why. San Diego CPA experts warn that although you may be proficient in your field, you may not be able to navigate all the tax laws that apply to you. Potential pitfalls and landmines can cost you and your business thousands of dollars. We don’t want to happen to you or your business.
So in this blog post, we share four common mistakes to avoid when filing your taxes this year.
Deducting wrong start-up costs
New businesses are more likely to make this mistake than established companies. This is because most owners overestimate the amount of deductible startup costs in their first year of tax preparation.
Generally, you cannot deduct all your startup costs immediately. First, you must make a sale and then deduct those expenses over time, usually 15 years.
Financial experts advise startups to strategically wait until their second or third year to make deductions. But if your current financial situation won’t allow, consult an experienced CPA.
Selecting the wrong entity
Selecting the best tax entity for your business can be challenging. There are numerous options to choose from ranging from a sole proprietorship, C-Corp, LLC to Nonprofit, and partnership.
Picking the wrong entity can have a devastating impact on your business. For example, if you choose C-Corporation, you increase the amount of taxes you owe. On the other hand, if you work with an LLC, you risk reducing funding from outside investors. Therefore, it is wise to talk to a San Diego CPA to guide you through the process.
Deducting personal costs as business expenses
One great benefit of having a business is that the Internal Revenue Code (IRC) permits a deduction of certain expenses. However, these costs must be related to your business.
In a bid to curb unscrupulous business owners, the IRS developed state-of-the-art tracking systems for assessing and distinguishing business versus personal expenses. Business owners who mix business and personal expenses risk losing thousands of dollars in hefty penalties.
Not working with a qualified CPA
It is not uncommon to find small business owners who file their taxes without consulting a tax professional. Although some of them get it right, others are not so lucky.
If you’re not sure about making tax preparations for your business, don’t do it alone. A qualified CPA can advise you on important things such as what tax credits to claim, how to save money, and more.
At Abbo Tax CPA, we have a team of tax experts ready and happy to help you. Contact us today to speak with one of them.
