NebulaBiz Cash Advance Melbourne Fl: Are These Tax Deduction Mistakes Costing Your Small Business Money?

Friday, April 5, 2019

Are These Tax Deduction Mistakes Costing Your Small Business Money?

Are you throwing away money due to tax deduction mistakes? Doing your small business taxes is never a pleasant experience (well, it may be if you’re an accountant). This year’s taxes could be even more nerve-racking than normal since the Tax Cuts and Jobs Acts (TCJA), which took effect in January 2018, made some substantial changes to the tax deductions small business owners normally rely on.

Changes to the tax law make it more important than ever to keep detailed records of your business expenses to avoid making tax deduction mistakes. However, most small business owners are failing miserably at tracking their expenses, a recent study found.

More than 50% (55.4%) of respondents don’t deduct all of the expenses they’re entitled to on their taxes every year, according to a study by QuickBooks. In the poll of over 500 self-employed individuals and small business owners, just 15.2% of respondents say they are able to deduct 100% of what they’re entitled to every year.

Why are these entrepreneurs leaving money on the table? Poor organization and bad record keeping are the biggest culprits, the study found. Here are small business owners’ most common tax deduction mistakes.

Tax deduction mistake #1: Not keeping track of every expense

Some 21.8% of respondents say they don’t take all their deductions because they can’t remember all their expenses. Of course, there’s no way you can remember all of your expenses for a year without documenting them somehow. But even among those who do track expenses, there’s a lot of room for improvement (as Mistake No. 2 shows).

Tax deduction mistake #2: Not keeping receipts and records organized

Almost 80% of respondents say they could do better at organizing their receipts; just 20% feel there’s no room for improvement. Some 70% of respondents say they lose an expense receipt at least once a month.

It’s no wonder receipts get lost: Just 16.8% of respondents track their receipts digitally. In fact, almost 15% literally use shoeboxes to store their receipts! About 40% keep receipts in a physical folder, but it’s easy for small receipts to get lost in that type of filing system.

Sloppy expense tracking causes stress—something no entrepreneur needs more of. About 30% of survey respondents report that expense tracking regularly stresses them out, while 53.8% say organizing their expense records is stressful.

Digitizing your receipts is the easiest way to make sure you keep detailed records of expenses and avoid tax deduction mistakes. Digital receipts can easily be shared with your accountant or tax preparer, too. There are also lots of apps you can use to scan and store receipts. To make your life easier, look for one that has a mobile app, integrates with your accounting software, lets you search receipts, and can link receipts with client invoices.

Once your receipts are digitized, you don’t have to worry about losing those tiny scraps of paper between now and tax time. You can either scan your receipts as the expenses occur (if you’re a very organized person) or collect all your paper receipts and set aside time at the end of each week or month to scan them.

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Tax deduction mistake #3: Forgetting to separate personal and business expenses

You can get in big trouble at tax time if you commingle business and personal income and expenses. Unfortunately, this is one of the most common tax deduction mistakes for new business owners. Every business owner or freelancer should maintain separate business and personal bank accounts, as well as personal and business credit cards.

Being careful to use the appropriate credit card or bank account for each expense can help you track personal versus business expenses. So can using digital expense tracking apps that allow you to categorize your expenses.

Tax deduction mistake #4: Not knowing what’s deductible

It can be hard to know what expenses are deductible, since tax laws seem to change constantly. For example, the Tax Cuts and Jobs Act made the following business expense changes:

Client entertainment costs such as sporting events and concert tickets, formerly 50% deductible, are no longer deductible. However, you can still deduct 50% of the cost of meals with clients.
Office snacks and meals for employees are now 50% deductible (down from 100%).
Transportation fringe benefits for employees, such as transit passes or parking permits, are no longer deductible.
Business property with a life of 20 years or less, including vehicles, computers and software, office furniture, machinery and equipment, can now be deducted 100% the first year it’s put in service.
Passenger vehicles placed in service in 2018 have a maximum first year depreciation allowance of $18,000. Get more tips on deducting the business use of your car.

Respondents in the QuickBooks survey have deducted everything from a banana and a cow to a shrunken head and mustard. Don’t make these mistakes! If you’re not sure what’s deductible, visit the IRS website and read IRS Publication 535 for full details on what you can and can’t deduct as a business expense. It can also help you to maximize your deductions, too.

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