Tax time is here. Filing your taxes isn’t much fun, but getting that tax refund deposited into your account can certainly brighten your day. Your tax return is a great opportunity to pay off some bills, invest in your business, or stash some funds away in savings. Everyone wants to take full advantage of all of the deductions that are available so that they can maximize their refund. However, there are some common mistakes filers make that can either reduce your refund or create bigger problems down the road, like audits. Look out for these common mistakes that business owners make at tax time.
Mistake #1 – Throwing Out Receipts
The IRS does not require that you submit receipts for food and entertainment expenses if those expenses are less than $75. Many people hear this and toss the receipts for those expenses. Not so fast. You are not required to keep the receipt for expenses less than $75, but you are required to document the expense in terms of where, when, who, and why those funds were spent. The simplest way to keep that information documented is by hanging on to the receipt and writing the details on it. The other option is to keep a separate log that documents these expenses, but make sure you record the information in some fashion before you throw out those receipts.
Mistake #2 – Combining Equipment and Supplies
Any equipment that you purchase for your business is considered to be a capital expenditure, which means that it must be depreciated. Typically, a small business can write off up to $24,000 in capital expenditures for equipment in the year that the equipment is purchased. However, these capital expenditures must still be reported. It is vital that you properly report the deduction and categorize it correctly as either equipment or supplies. Failing to do so can result in the IRS denying your deduction.
Mistake #3 – Not Tracking Reimbursable Expenses
As a small business owner, you probably pay for business expenses with cash or your personal credit card from time to time. If you do, you must track those costs and submit them through the business for reimbursement. Your business needs to have a plan in place in order to make sure that reimbursement for those business expenses is non-taxable to employees.
Mistake #4 – Improperly Deducting Automobile Expenses
Deducting your auto related expenses can be confusing, because there are several different ways to do it. These are some of the options.
- Use the standard mileage deduction for each mile driven for business purposes.
- Deduct actual expenses, including vehicle depreciation.
- Alternate between the standard mileage deduction and actual expenses. If you go this route, you can only claim the straight-line depreciation for the vehicle, not the modified accelerated cost recovery (MACRS) depreciation system.
- 100% of vehicle costs can be deducted if the vehicle is owned by the business. In this situation, personal use of the vehicle by an employee must be treated as taxable income.
Mistake #5 – Claiming Excessive Business Gifts
The IRS allows business to deduct up to $25 for a business gift to an individual. You can deduct $25 each for multiple gifts, but you can only deduct $25 for each gift. If a gift is given to one individual that cost $100, you may only deduct the first $25 of that gift.
If your small business could use some guidance as you are getting ready for tax time, get in touch with Acceler8. We provide business and tax and accounting advice to many small businesses like yours. Contact Acceler8 today to learn more.