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business taxes

4 Common Small Business Tax Mistakes

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As a small business owner, it is essential to understand your tax obligations and stay on top of filing deadlines. Unfortunately, mistakes can happen, and it is wise to be aware of the most common issues that arise when filing taxes for your business. In this article, you will learn about the most common small business tax mistakes so you can take proactive steps to avoid them. Knowing what to look out for can help save you time and money when preparing your taxes. Procrastination With the tax season in full swing, it is important for small business owners to stay informed and up to date on their taxes. Unfortunately, many small business owners make common mistakes when filing their taxes that can be easily avoided. One of the most common business tax mistakes is procrastination. We know, there are very few people – especially business owners – who jump for joy once tax season hits. But it’s important to think about your tax season the same way you think about your business plans: even if you are living your dream of running a business you love, there will be things you don’t like doing. And you can’t put those things off until the last minute and expect the rest of your operations to run smoothly. The same is true with your taxes. In fact, when you file your taxes and your information returns early, you make it easier on yourself and the recipients of those forms to find new ways to make the most of this tax season. Not Verifying Vital Information This is one of the more obvious mistakes that so many of us make, and so few of us think we will make. It’s tedious, but a major mistake that millions of tax filers make every year is not verifying vital information on every single document page. You should always take the time to double-check that the correct name, Social Security Number, and date of birth are on your forms. The same is true for your business information, TIN, and related identifiers. The only thing worse than filing taxes is having …

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Home Office Deductions for Tax Year 2022

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In 2020, we shared the latest home office deductions information in regard to the shift to remote work caused by the pandemic. Two years later, we wanted to share an update to help you prepare for your 2022 taxes.  What has Changed Since 2020? Who qualifies for a home office deduction has not changed. Only self-employed individuals who work from a home office can take advantage of this deduction. How the deduction is calculated has been the same since 2013.  While this deduction hasn’t changed, it bears repeating how to take advantage of this deduction.  How to Calculate the Home Office Deduction According to the IRS, you have two options to calculate the deduction: the regular method and the simplified method. The Regular Method Using the regular method, you calculate the deduction by determining the percentage of the space that is dedicated solely to business use.  Direct business expenses are fully deductible. This includes updates made only to your home office, such as: Painting  Installing flooring Making repairs  Furniture Fixtures Indirect expenses can be partially deductible. This includes costs associated with your entire home: Property taxes Mortgage interest Rent Casualty losses Utilities Homeowner’s or renter’s Insurance Maintenance and repairs Depreciation The Simplified Method Using the simplified method, you can deduct a flat rate per square foot of the space dedicated to your business. For tax year 2022, that’s $5 per square foot with a maximum of 300 square feet or $1,500.  Remember: Your calculation must focus on the space dedicated to your business, not your entire home. How to Choose Your Deduction Method You can change your deduction method each year to maximize the deduction – and you don’t need a specific reason in order to do so.  It’s best to calculate using both methods and then choosing to use the method that will help you save the most money. Of course, this means …

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1099 Write-Offs You Probably Didn’t Know About

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We previously shared common 1099 deductions, so in preparation for tax season, we wanted to share 1099 write-offs you probably didn’t know about. 1099 Write-Offs You Probably Didn’t Know About Business startup and organizational costs If you started your business this year, you can write off many expenses associated with starting your business. In business terms, these are known as startup costs. In tax terms, these are known as investigation costs. Startup costs include:  Advertising Acquiring an existing business Consultant fees Customer surveys Equipment costs Leasing a business property Market research  Product research Site selection costs Wages and salaries for training Similarly, you can also deduct many organizational costs. These are the costs of forming your organization – specifically, a corporation, LLC, or partnership.  Organizational costs include: Accounting fees Legal fees  Organizational meetings Partnership filing or incorporation fees Temporary directors To deduct the costs above, make sure the fees you are writing off are only applicable to forming your organization. Other accounting or legal fees do not apply here. Cell Phone Costs  If you use your cell phone for personal and business purposes, then you can deduct a portion of your cell phone bill costs from your taxes.  To do this, estimate the percentage of your cell phone plan that is used for business purposes, and then write off that percentage. You can review your phone usage for a typical month and then average that for the entire year. Commission and Fees Some commissions and fees can be written off. However, when and how they can be deducted varies. Commissions and fees that are considered capital expenses must be amortized, which means spreading them out over 15 years, which includes these types of commissions and fees: Getting a lease on a business property  Issuing and selling stock or securities …

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Tax Avoidance vs. Tax Evasion

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We want to make sure you’re on the right side of the law when it comes to filing your taxes, so in this article, we explain what tax avoidance and tax evasion are, what the difference is between the two, and a few ways you can minimize your taxes legally. What Is Tax Avoidance? Tax avoidance is structuring your business transactions so you can lower your tax bill. Tax avoidable is legal and wise. A common example of tax avoidance includes maximizing your retirement contributions, such as IRAs and 401(k)s. What Is Tax Evasion? On the other hand, tax evasion is attempting to deceive the IRS in an effort to lower your tax bill. Tax evasion is illegal. Common examples of tax evasion are failing to report all or some of your income, concealing business assets, or pretending personal purchases were made for business purposes. The Difference Between Tax Avoidance and Evasion The primary difference between tax avoidance and evasion is the intent. The intent behind tax avoidance is to only pay what taxes you legally need to pay and not a penny more. The intent behind tax evasion is to commit fraud.   How To Minimize Taxes Legally There are three ways to minimize how much you pay in taxes: Reduce your taxable income – Claiming deductions can lower your taxable income. You can also hire contractors instead of employees, donate to charity, create a retirement account, and more. Maximize tax deductions and credits – Credits reduce your tax bill dollar-for-dollar while deductions reduce your tax bill by a percentage according to your tax bracket.  Time income and deductions appropriately – You may change tax brackets from tax year to tax year, so timing your income and deductions accordingly can help you save money.  What if You Make a Mistake? Mistakes happen. That’s why we offer corrections filing for 1099, 1098, W‑2, and Affordable Care Act forms.  The best course of action is to correct the mistake as soon as possible. If you make a mistake …

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How Interstate Business Taxes Are Different

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With the rise of remote work and online access to professionals across the country and the world, there has been a significant rise in interstate business operations and practices. But how does that affect your taxes and what do you need to know to stay on track? We can help. What is an Interstate Business? Since the beginning of the pandemic, nearly 30% of US employees have been working outside the state or country they reside in. Many are doing this to cut expenses (including commuting and rental accommodations) and to reduce taxes. Living in one state and working in another causes some interesting tax challenges for employers. These interstate business setups often mean confusion, particularly around income taxes – which state and local taxes must be paid? What are the tax rates in these areas?   Interstate Business Taxes: Examples Each state’s tax code varies, and some are easier to decipher than others. For example, there are 7 states that have various types of the “convenience of employer” rule: Massachusetts, New York, Arkansas, Connecticut, Delaware, Nebraska, and Pennsylvania. This rule allows a state to continue to tax employees working out-of-state (anyone who lives in one state and works for a business with an address tied to a different state). For example, if someone is employed by a New York company but lives in Illinois, they are still considered a New York-based employee – it doesn’t matter where your home is that you’re working from, it only matters where the business you work for is located. Because each state is different, you have to be sure your business is compliant with the tax laws in the state that your business is headquartered in, as well as the state each of your employees is living in and working from. It’s not uncommon, especially for fully remote teams and companies, to have a mix of interstate and international employees on their teams. California, for example, puts the responsibility on the employer to withhold …

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Tips for Reducing Your Business Tax Liability

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Managing business tax liability is a great way to save yourself some money (or even procure a refund) at the end of the calendar year. There are several lucrative (and legal) ways to do that. Here are some great tips for reducing your 2022 business tax liability. How the Super-Rich Reduce Their Business Tax Liability - & How You Can, Too Often, small and medium-sized business owners think they will have to bear the brunt of their business success or failures come tax time, but it’s worth looking into what the super-rich are doing to save some money. One of the most common ways to reduce that tax bill is to have a giving heart. If you want to reduce your business tax liability, there are so many charitable ways to do so. You can sponsor community events, pledge money for certain causes that are dear to you or pair well with your business’s mission, vision, and values, and donate supplies to local homeless shelters, food banks, and charity drives. You can also participate in charity days, where a percentage of your sales for one day, one product, or one month all goes to a cause of your choice. There are several small businesses that partner with other area businesses or charities and create a product or service in which all the proceeds from those sales go right back into the community or charity. Another way to reduce business tax liability is to invest in stocks – the taxes are lower on these investments than they are on wages, the losses can actually help you lower your tax bill, and any gains can circumvent capital gains tax if you just wait a bit to pull the profits out of the market. Bundle Your Expenses There are several ways to use a bundle approach that can help you use your expenses to reduce your business tax liability. The first, and biggest, tip we can offer is to wait until the end of the year to make major business-related purchases. This includes purchases that make sense for your business – buying a brand-new piece of …

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