10 Top Tax Mistakes

We are small business accountants, not CPAs or tax attorneys (though we know some great ones), but when we can help an owner avoid the top mistakes made by small businesses owners, well…we will!

Top 10 Tax Mistakes

  1. Using the wrong legal entity. Your small business is designated as a sole proprietorship? If so, you are more likely to be audited, have the least allowable deductions, and no legal protection.
  2. Classifying employees incorrectly. Because employees are about 25-30% more costly, due to income tax withholding, one in three workers is an independent contractor. It’s important that you get the classification right and treat them appropriately from a tax standpoint.
  3. Not properly deducting startup expenses. Most startups miss one of the most beneficial IRS deductions—the allowable $5,000 to investigate markets, product analysis, etc. and another $5,000 to get a business ready to operate, including consulting fees and travel. That’s $10,000 in deductions in year one!
  4. Doing your own taxes. You can run your business or read the federal tax code. In 2016, it was 74,608 pages long. Are you really up for that?
  5. Using the wrong tax professional. Your business is unique; your industry or marketplace is unique. Find and use a tax professional who understands your business. Just because a tax preparer is licensed, you need the right person who can legally minimize your tax expense.
  6. Mixing personal and business expenses. You’re too busy or don’t know how to correctly distinguish personal expenses from business expenses so you mis-report or under-report, or over-report expenses. They add up over time and are the #1 reason small business owners get audited.
  7. Failing to plan for taxes. Instead of rushing to finish your taxes weeks or days before the filing deadline, business owners should look at tax consequences throughout the year with the goal of getting a better net effective tax rate.
  8. Not keeping accurate records. There’s really no excuse in the era of digital tools to not track expenses and receipts, yet many small businesses pile scraps of paper in the shoe box or file cabinet that, at tax time, can be overwhelming even for a professional tax preparer to figure out.
  9. Not using carryover deductions. Expenses incurred in one year but exceeded the allowable deductions for expenses can be used the following tax year. Unless you maintain accurate records, these deductions may be forgotten. An expensive oversight!
  10. Not filing on time. Why pay a 5% penalty for every month your return is late? The penalty cap is 25%, but depending on your bottom line, this amount could be substantial.

The Internet of Things

communication-1927697_1920The Internet has connected us as never before in the history of mankind. Never have grandparents been able to keep up with the daily lives and photos of grandchildren living hundreds of miles away, or sweethearts separated by wars and oceans stay so connected. Never before has business tapped into the hearts and minds of their customers through social media and interactive websites. But we haven’t even started. Prepare for The Internet of Things.

Known by its acronym IoT, The Internet of Things speaks to a system of interrelated computer devices, machines, objects, people (even animals) that are provided unique identifiers and the ability to transfer data over a network without human-to-human or human-to-computer interaction.

The first IoT appliance was a Coke machine at Carnegie Melon University that was hooked up to the internet so programmers on the top floor could check the machine’s supply of cold beverages in the coke dispenser on the bottom floor before making the trip.

The Fitbit is a modern example. Wearing a Fitbit bracelet on your morning run gives you immediate feedback on your heart rate so you can adjust your effort for maximum impact. Daisy the Cow injected with an ID chip under her hide is protected from farm theft and should she wander out of the dell, she can be indisputably returned to her rightful owner. Our cars and trucks have sensors to alert us about low tire pressure, oil changes, faulty airbags and a slew of other safety issues.

The first computers relied on human beings for information. But we were too busy to take the time to tell our computers everything they were capable of knowing. So we designed computers to capture knowledge without any help from us, then ask our computers to analyze all that data to help us make life easier, do more with less effort, track and count things to reduce waste, to know when things need repaired or replaced, or when our bodies are operating at peak performance.

Conservationists put IoT to work for good in the Amazon rainforest. A Brazil-located services company places sensors in protected trees. If a tree is cut down or removed, the sensor sends a message to law enforcement with the exact GPS location and time of the felled tree.

In the financial industry, we successfully used Internet technology to serve our customers better and to be more efficient. How will we use IoT? After all, we deal with information and numbers rather than physical objects, like a heart or a tree.

There’s talk about insurance companies using IoT to record driver behavior and to charge insurance rates accordingly. What sensors could be deployed in finance that would address risk management concerns and security? Short of communicating to their financial advisor when a certain piggy bank used for retirement savings was smashed open, we’re not certain. But one thing is certain with The Internet of Things—someone will find a problem not yet solved.