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3 Tax Traps Your Business Doesn’t Need

taxes 2April 15th is coming up fast and if you haven’t already filed a tax return, there are a few very important items to consider if you’d like to take certain business deductions. Sure, we all have business expenses. But all of those business expenses are not created equal and some of them aren't as well documented by business owners like you as well as they should be, which could cause you to miss out on some precious dollars coming back in your pocket.

Take a closer look so you don’t fall into these typical tax traps:

Tax Trap #1: Short-term supplies or long-term equipment?
Let’s say in the last few months you bought some high value equipment that you’re going to use for at least a year or two as well as some very minor day-to-day business supplies like envelopes and paper. Are you putting all of that in one big category of “Business Expenses I Can Write Off?” Not so fast. There’s a difference.

The equipment you purchased that’s probably going to last you a couple years needs to be reported on one kind of form, called a Form 4562. The other day-to-day things you tend to go through quickly, like office supplies, are just that – supplies, not equipment. That calls for a different kind of form, called a Schedule C.

Why is this important? Because the IRS needs you to report an expense in the right way and failure to do so could be a mistake you don’t want to make if you expect a deduction (or “write-off”) on that item. Assuming you use the right form for short-term supplies and the right one for long-term equipment, you may be able to deduct equipment either in full or a portion for every year you use it. 

Tax Trap #2: Don’t forget to report the small stuff too
It’s easy to remember the bigger purchases you made in the last year, especially equipment of a high dollar value that you may be able to deduct. But what about all that mileage you drove to meet with prospects and clients? Did you keep track of that? Even if it was a short trip in the same town, those trips add up. What about the small monthly expense you might pay to keep a website up? Or a book of stamps you’ll buy here and there?

All of it matters and all of it should be tracked. While you may not be able to deduct it in exactly the same way (see Trap #1), you still have to remember everything you purchased for the business. Don’t wait until right before April 15th to get your receipts in order.

Tax Trap #3: “Tax time” comes every quarter, not just April 15th
That’s right. Businesses need to pay estimated quarterly taxes in addition to what they face on April 15th. It tends to make the annual tax filing much smoother rather than an unwelcome surprise in learning that you have a penalty from not paying your quarterly taxes to the IRS.

Where’s the best place to find assistance? An accountant who specializes in small business tax planning can be a big help in identifying the ins-and-outs of what needs to be reported, what you can suitably deduct from your expenses and when crucial expenses need to be paid. If you’re confident enough to do it yourself, some programs like TurboTax have come a long way and tout that with their help, you can handle it on your own. Either way, keep these kinds of tax traps in mind to help you prepare not only for April 15th but the days that follow. Better, more accurate records kept on a consistent basis year-round can help you focus more on your business and less on taking a “crash course” in accounting on an annual basis.

Dani Nichols

I started out with NAPCO in 1996, shortly after it was purchased by Steve Coven. Both Steve and I shared a vision of growth for NAPCO. Always hungry for knowledge, I learned whatever I needed including sales, marketing, web development, operations management, HR, building and retaining a customer base. Whew! It has been a lot of fun because in the end, I really like working with our customers. They make it all worthwhile for me.

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