Tax season is just around the corner and if you run your own business, you’d better get prepared. Business taxes can get complicated and there are a lot of misconceptions going around that make them seem like a non-issue. The fact is that the government has very strict tax regulations that don’t leave much wiggle room. It’s a good idea to back your company up with a qualified accountant that can support you throughout the year, especially during tax season. Their expertise and professionalism will ensure that your taxes are error-free, and you can capitalize on all the business tax deductions available to you. For now, here are 5 misconceptions about business tax deductions that you may not already be aware of:
Accountants Are a Waste of Money. I Can Do it Myself
As I hinted at in the previous paragraph, having a good accountant is an important part of being a successful business owner. Even if you feel confident in your business endeavor, unless you are a professional accountant, I would encourage you to invest in an accountant. Many business owners believe the myth that accountants are unnecessary and find out only too late that they could have saved them huge amounts of money, and many hours of stress if only they had found them sooner. Especially if something problematic comes up, you’re going to want a strong and qualified accountant to back you up and have all the technical jargon and facts!
I Can Deduct Everything I Buy Through my Business
Although this would be a great idea, it’s simply not true. There are very black and white regulations regarding what is and what is not deductible through your business. For example, while most communication expenses, like cell phones and internet billing, are complete write-offs, you can only claim 50% of meals and entertainment and only if they are business-related. Certain rules apply to things like insurance, vehicle maintenance, and fuel. And no, you cannot claim personal expenses under your business under any circumstance. You could be asked to justify your expenses at any point, and if you’re unable to do so, you will be penalized.
I’ll Just Put Everything in a Box and my Accountant Will Handle the Rest
Please don’t do this to your poor accountant. They are not your employees; they are a hired professional. Chances are, even if you asked, they would send you right back to your office to do your own sorting. I mentioned earlier how valuable an accountant is to have on your team, but you need to do your part to help make sense of the business’s expenses and income. At the bare minimum, you should be inputting your expenses into an excel spreadsheet (or a more advanced business program), scanning your receipts, keeping documentation, and tracking all income (cash and bank accounts).
If I Lose in the Stock Market, my Losses Will Cancel out my Tax Liability
Another common belief is that you can use your capital losses to cancel out your entire tax bill if your losses are high enough.This is true to a degree, but not in the way everyone seems to think. There is a maximum deduction of $3,000; but if you sold your stock for a major loss, you could claim your losses as a deduction against your income. This could be a very helpful tip for some people, but keep in mind that there is a limit; meaning even if you lose $10,000, you can only claim $3,000 of it.
If I Incorporate my Business, I Am Clear of all Liabilities
While incorporating your business is a good step in separating you from it, it does not erase all personal responsibility. Many people seem to be under the impression that having your company incorporated means you’re free to do as you please with no repercussions. As nice as that would be, owners of incorporated businesses still have personal liability in many areas. For example, anything with the owner’s signature or names on it, such as loan agreements or contracts will follow the business owner; not the corporation. As well, if the owner does not keep up with corporate compliance paperwork or commits a crime, then he or she will be responsible.
While there are many ways to save on your tax bill, there are many misconceptions that seem to be bussing around the business world. Don’t be fooled by taking the word of a nonprofessional. Always play safe and consult your accountant and document everything that comes in and out of the business hands. Every year you will have the opportunity to learn and evaluate your spending and income habits, which will help you grow the successful business you deserve.