I see it every April 15th. Every year, without fail, I come across countless small business owners who end up paying thousands of dollars in taxes that they could have avoided if it wasn’t for these seven biggest tax mistakes small business owners make:
- Failing to plan. This is the biggest mistake of all. I don’t care how good you and your tax preparer are with a stack of receipts on April 15. If you didn’t know you could write off your kids braces as a business expense, you’re going to pay too much in tax. Get a proactive tax plan.
- Fearing, rather than respecting, the IRS. I encourage clients to take full advantage of every legal deduction, credit, loophole and strategy. Most legitimate deductions–for example home-office expenses–aren’t likely to raise the likelihood of an IRS audit. (In fact, audit rates are actually at historic lows.)
- Failure to make the most of meals, entertainment and gifts. IRS rules allow you to deduct meals with prospective or current buyers, sellers, tenants, referral sources, and any other business colleagues. Let me ask you this: when did you ever eat with someone who’s not in one of those categories?
- The mistake of using the “mileage allowance”. At this time the IRS will give you 57 1/2 cents per mile as a business expense. At this same time, AAA publishes a vehicle operating costs survey, which tells you that, for most cars, trucks and SUVs, you’re losing money every time you turn the key if you utilize the IRS mileage allowance.
- Failure to write off medical bills as a business expense. If you own your own business, whether part-time or full-time, you can set up a medical expense reimbursement plan, or section 105 plan, that will allow you to write off your kids braces, your chiropractor costs, and 100% of all other medical expenses–and not just the amount that exceed 10% of your adjusted gross income.
- Missing family employment. This is really the mistake of not knowing how to write off your kids private school or college tuition costs. Hiring your 12 year-old son to cut grass for your rental properties can be a great way to cut taxes on your income and at the same time deposit money into a section 529 college savings plan
- Missing tax coaching service. You may have a life coach, a business coach or a personal trainer. But what about a tax coach? Someone who will look for mistakes or missed opportunities on your prior year tax returns, assess your current situation, and give you pro-active strategies to stop wasting dollars on taxes you shouldn’t be paying. A tax coach will tell you what to do, when to do it, and how to do it. You will receive a formal, written tax plan specifically designed around your family, home, job, business, and investments. Typical savings: $5,000-$10,000 or more per year, every year going forward.
Anchor on this: When it comes to taxes, I’ve got good news and bad news. The bad news is you’re probably not taking advantage of every tax break you can. The good news is you can do better, and you can do it as soon as you stop making the biggest mistake of all; failing to plan. If you want to find out if our pro-active tax coaching is right for you, give us a call today — it costs nothing to talk.