The biggest problems small business owners make on their taxes are often mistakes or oversights they made during the previous year, the Associated Press reports. Sloppy record-keeping is the main reason for mistakes, even when accounting software is used, experts say.
Small business owners also often short-change themselves by not taking all the deductions they are entitled to because they aren’t well versed in tax law basics.
Here are two tips from experts:
1. Improve your record-keeping. Jeffrey Berdahl, a certified public accountant with RLB Accountants in Allentown, Pa., says it’s important to have a record-keeping program. If you use computer software, become an expert at it or pay someone who’s more tech-savvy to input the numbers for you, he says.
2. Keep track of business vs. personal expenses. If you use your car or home for business and personal reasons, you need to keep track of what you spend for each. Berdahl says those who use their cars partly for the business, or who have a home office, should go over all the expenses from the previous year and be sure that they don't miss any deductions.
For car expenses: Insurance, gas, repairs, and garage rental can all be deductible. Determine the percentage that the vehicle was used for business and then multiply that by the expenses for the deduction amount.
For a home office: Mortgage interest or rent, insurance, utilities, and maintenance costs can be deducted, using the home’s square footage as a guide for the deduction amount.
Source: “Small Business Tax-Time Problems Usually Result From Mistakes, Omissions Made in the Past,” The Associated Press (Jan. 20, 2011)