Top 5 Tax Blunders of Small Businesses
Posted by Jennifer Shaw on Fri, Feb 05, 2010 @ 06:00 AM
By Greg Shroen, M.B.A.
Tax season is right around the corner. Don't be one of the ones who waits until midnight on April 15th to file your taxes - personal or business. And while you are gathering all those important documents together, take a look at Greg Shroen's Top five small biz tax blunders for things to be on the look-out for.
1. Failure to Document
98% of IRS audits that result in an adverse ruling for taxpayer come under one heading... “Failure to Document”. This is a broad term that simply means that the taxpayer was unable to furnish written evidence to prove that the deduction claimed on the tax return was indeed real and valid. This rule can often be as simple as the adage “always get a receipt”. Furthermore, it takes just a tiny fraction more of our time when practiced on a daily basis with a few simple techniques so we can avoid owing a bundle in potential tax liability, penalties and interest.
2. Missed-out on the Home Office Deduction
Of course, smart people seek to avoid being audited, and many have heard that the home office deduction would put them square in the cross-hairs of a dreaded IRS audit. This concern is misplaced and grossly overblown. In fact, when done properly, this is the cornerstone of a potentially enormous deduction and often can be used for businesses with an office(s) outside the home.
3. Precautions not taken surrounding true Audit Red Flags items
Every item on the tax return is scored with DIF points and when your return racks up enough points, you will have earned yourself “special attention” from the IRS. Side-stepping these land mines is crucial; even better is taking precautions in the first place so you rightfully have “No Fear” because you are armed with knowledge and advance preparation.
4. “I never got around to it” and lost the opportunity to implement those great tax saving ideas BEFORE it was time to do the tax return.
“If only I’d...”, I hope this doesn’t sound familiar to you but some of the best deductions take some advance planning and action, such as: knowing how to have fun and being able to write it off, knowing which types of insurance are deductible for your business, knowing which types of retirement plans optimally suit your business, and creating yourself a tax-advantaged benefit plan that saves you money year after year.
5. Failure to take deductions for things overlooked.
Most people look at their checkbook and bank statements searching for deductions and can overlook items that don’t even appear there. Other items are there, but no one had a clue that they were deductible as they were believed to be a personal expense and unrelated to the business.
What are you missing? It's not too late - yet! Learn how to simplify your record keeping and bullet-proof your tax deductions at the same time. AND... Learn the top secrets for maximizing your legal tax deductions.