Tax code can be extremely confusing, and it is normal to ask your friends and family for advice on how they handle their finances. However, due to the tax code’s complexity, it just so happens that most advice you hear is more myth than fact, and believing everything blindly can lead to grave mistakes. It is always better to seek professional help and advice from business tax advisors.
Common small business tax myths debunked.
Some of the most common myths regarding small business taxes are:
Start-up costs are immediately deductible.
The start-up costs of a business are the expenses that occur in preparation for starting your business before you begin operating business. Both start-up and organizational costs are included in business start-up costs, which can vary depending on the business. These start-up and organizational costs are known as capital expenditures. When starting a business, you can deduct certain organizational costs but must amortize the remaining costs.
Overpaying the IRS can make you audit-proof
It is never a good idea to overpay the IRS, intentionally or unintentionally. Pay only the amount of taxes you owe. If you want to audit-proof yourself, the best way is to document your expenses properly and ensure you are keeping on top of the accounting.
If your business is incorporated, you can take more deductions.
More often than not, becoming an incorporated business is an added expenditure that most small business owners don’t need. The good news is that most small business owners and sole proprietors are qualified for many of the same deductions as incorporated businesses.
An extension to file gives you extra time to pay the taxes you owe
An extension to file will only give you extra time to file your taxes. If you fail to pay your taxes before the due date, penalties and interests will pile up.
Part-time business owners can not have a self-employed pension plan.
You can set up a SEP-IRA account for your business and take deductions, even if you have a salaried position with a 401K plan.
Speak to a skilled professional today
Filing taxes can be very confusing, and the last thing you want to do is make a mistake that could cost you your business. Reach out to a skilled professional today and get help filing your taxes and managing your accounts. Do not hesitate to talk to a tax professional if you have questions about other tax myths.