Some Business Tax Mistakes to Avoid
Some Business Tax Mistakes to Avoid – Since the sum total of the taxes paid by a business is such a major expense, the saving of tax dollars can be one of the most important contributing factors to business success and profitability. With the corporate tax deadline fast approaching, this article is focused on giving business owners a heads up on some common tax mistakes to avoid.
One common business tax error is to incorrectly classify workers as independent contractors when they should be classified as employees. Unfortunately, selecting the correct classification can be difficult because the rules governing employee classification are vague and vary from start to state. Nonetheless, selecting the correct designation is important as employees are subject to payroll taxes, unemployment insurance and workers’ compensation which must be paid by the employer. Thus, an incorrect classification can result in a real problem at tax time. A general rule of thumb is that if a person is a necessary part of the daily operation of a business, then they must be classified as an employee.
Another frequent tax oversight is to not collect sales tax for online purchases. This is another area that is difficult to navigate and decipher because, like the employee classification issue, the rules for sales tax vary from state and even for different counties and cities within the state. Basically, if the jurisdiction that the customer lives in has a sales tax, then the seller is required to collect these taxes at the time of sale and submit them to the appropriate tax collection agency. The issue of collecting sales tax for online purchases is expected to increase in complexity with the impending passage of the Marketplace Fairness Act.
A third common source of error in area of corporate taxes is the deduction of start-up costs for new businesses. What many new business owners don’t realize is that not all business start-up costs can necessarily be deducted in the first year of business. There is a limit on that amount and anything that goes over the limit must be amortized over 15 years. The IRS allows a maximum deduction of $5000 in start-up costs and an additional $5000 in organizational costs for the first year in business. It should also be pointed out that no deductions for start-up costs can be taken until the year that the business actually opens.
If your business is in need of business tax or business accounting services, our licensed professionals can provide you with the help you need. To learn more about our business tax and business accounting services, visit us today at www.businesstaxpreparation.com. Contact us by phone at (866) 676-9417 or by email at email@example.com to receive a free, no obligation consultation.