Tax obligations are often a dreaded aspect of starting a business, but sorting out your tax obligations doesn’t have to feel like pulling teeth! Here are a few tips to avoid common mistakes so you can make your business—and life—easier in the long run.
- Pay Quarterly Taxes
Quarterly taxes are usually required by the IRS for all entities, including sole proprietors (except during your business’ first year). Setting aside a percentage of your profit can help you maintain compliance easily.
- Keep Records of All Your Expenses
You get to deduct all “ordinary and necessary” business expenses like office supplies, event fees, and miles driven. But you will miss out if your record keeping is poor or lacking. If you’re a smart phone user, there are many apps to help you track expenses, mileage, receipts and more.
- Take the Deductions You’re Entitled To—Correctly
If you have a designated office room or space in your home that is used exclusively for business purposes, you can claim a home office tax deduction. Recently the IRS has instituted a flat rate write-off as well to simplify the process. You can read more about it in IRS Form 8829.
Equipment and supplies are other deductions you’ll want to take. You use supplies during the year, things like paper, pens, toner, and paperclips. However, a new computer, shredder, and office furniture are things that cost more and will last longer than one year; these would fall under equipment. Writing off equipment as supplies is incorrect.
- Start-Up Costs Incurred Prior to Opening the Business
If you invested personal funds in order to start the business (purchase inventory, equipment, and/or supplies) don’t forget to keep the paperwork and submit to your CPA even if incurred in a prior year. Start-up costs may be depreciated or expensed (depending on the situation), and failing to account for these purchases will leave potentially owing more in tax.
Keep these tips in mind and you’re off to a great start!