Business taxes can be incredibly complicated, and mistakes on your tax return can lead to potential issues with the Internal Revenue Service (IRS) or even worse, unnecessarily inflate your tax liability. Wondering if you’re completing your tax return correctly? To get an idea of how accurate your past returns have been, check out this list of mistakes Cleveland business owners often make on their taxes and learn how a Cleveland accountant can help you avoid these common errors.
Mixing Personal and Business Expenses
When you run a business, you get to deduct your operating expenses from your income. To ensure you get all the deductions you are entitled to, you need to track your business spending very carefully. Unfortunately, some business owners complicate their records by commingling their personal and business expenses.
To ensure that you don’t forget to report a business expense or erroneously claim a personal expense as a business deduction, you should keep your records separate. Ideally, you should open a separate bank account for your business as soon as you begin incurring start-up expenses.
Additionally, if you plan to use a credit card for your business, make sure to use a separate card than you do for your personal expenses. Then, you can easily see what you have spent on your business, and using a separate card also makes tracking interest easier. Remember, you can deduct the interest you pay on business loans or credit cards used for business purchases.
However, in some cases, the line between personal and business expenses can be confusing. For example, can you claim mileage for driving to the store? What about expenses incurred for items that are going to be used both professionally and personally? Is that dinner or trip eligible for a business deduction? When you hire a tax firm in Cleveland, their team can help you answer those questions.
Not Accounting for Taxable Income
While many business owners miss deductions, others can forget to account for taxable income. If you forget to report income, the IRS can amend your return, increasing your tax liability and potentially making you vulnerable to interest and penalties. As a business owner, you need to report all the revenue you collect. When you start collecting income from various payment processors, and mix in PayPal or even Venmo, it can be easy to over look considerable amounts of income.
By law, you even have to report the value of items you accept in trade as taxable income. For instance, if you own a carpet cleaning company and you clean someone’s carpets in exchange for services from their company, you should report the value of those services as taxable income.
Unaware of Tax Obligations
As a business owner, you have to think about more than just income tax. Depending on the type of business you run and the rules in your area, you may also have to pay sales or use taxes.
If you have employees, you have to cover payroll taxes. When you hire a Cleveland accountant, they can educate you about your tax obligations and make sure you are compliant with all the requirements related to your business.
Why We're the Best Accountants in Cleveland
To ensure you’re completing your tax returns correctly and meeting all your tax obligations, you should hire someone who provides tax services in Cleveland. Our tax firm in Cleveland works closely with clients to ensure they track their numbers thoroughly, collect their invoices timely, and pay their bills in the most efficient manner possible. In addition to bookkeeping and tax prep services, we also provide consultancy services. We can help you streamline workflows, assess profitability ratios, and make efficient decisions about your business.