Over the years I have identified common mistakes that business owners make. Since the March 15th deadline for Partnerships and Corporations is looming; I feel this is the most appropriate time to examine common mistakes, and provide helpful tips to avoid these mistakes. But most importantly you can use these tips moving forward in 2017. Let’s examine:
Misclassification of Loans Made to Business- Owners borrow and make personals loans to their business. But often, these transactions aren’t properly recorded as loans and could be classified as revenue that will be taxed. Tip: Identify these transactions and advise your accountant or tax professional of non-revenue deposits made to your business.
Maintaining Mileage Log- Imagine you are in an audit with no mileage log- the IRS will disallow mileage deduction which can be substantial. Technology has made it easy to keep track of business miles. Make it a habit. Tip- Use your appointment calendar to reconstruct your mileage.
Using Personal Credit Cards- Many of my clients forget they used personal credit cards for business purposes.It is certainly acceptable to use your personal credit card; but, create a system of tracking these expenses to include in your business tax return. Tip: If you pay your personal credit card from personal funds then have your company reimburse you for expenses.
Failure to Pay Estimated tax payments- Don’t be shocked when you file your taxes- be proactive and pay estimated taxes. Also, you will pay a penalty for failure to pay the correct amount of estimated taxes. Tip-Pay your estimated taxes quarterly based on previous year’s tax liability.
Review Financial data at Year-End Only-Waiting till tax time to prepare a Profit and Loss does not allow you the opportunity to monitor your expenses and revenue. How will you know if you are meeting your strategic goals successfully? You may think your business is doing well, but the data may show otherwise. Prepare monthly or quarterly financial statements. Also, on-line banking allows you to download your transactions into an accounting software. You should know your financial position at all times. Tip-Set aside time weekly to review your Profit and Loss, and Cash Flow.
Commingling funds-I admit I am guilty of this too, but it is important not to pierce your corporation by commingling funds. Pay your personal expenses out of your individual bank account. Tip-This is where planning comes in- have adequate funds in your personal account to pay your bills.
Setting up S Corporations to Avoid Self Employment Taxes- The IRS requires shareholders to pay themselves reasonable wages. Should your business be audited the IRS could reclassify distributions to wages. Tip- Determine reasonable compensation and set yourself up on a regular payroll schedule through a payroll company.
Depending on your entity classification-Corporation, Partnership, or Sole Proprietorship will determine the best use of these strategies. Owning a business is challenging- so much to consider, but remember there are resources and help available for you.
Want more information on Business Compliance? Contact us today for a free 30 minute consultation at 770-575-9737