There are three main stresses we all experience at tax time: the amount you owe, meeting the deadline, and the gnawing uncertainty that you did something wrong. At the end of the process, your success or failure regarding the first two are pretty easy to quantify – you get to see the numbers and the date on the check you write to Uncle Sam.
The third, however, can be a bit of a nebulous question mark that floats over your head all year, even after your taxes are finished. While we can’t write a blog post telling you exactly what your version of a best-case-scenario tax return looks like, we can show you some of the places where businesses make mistakes, or at least offer a sub-optimal performance.
We’ve picked some of the more common errors, so take a look and see if any of these sounds like they might apply to you.
Misreporting Your Income
This could be a case of over-reporting, under-reporting, or just plain forgetting to report income. If you receive some version of a 1099stating your income, then it was most likely reported to the IRS in the same way. If they find that there’s a discrepancy between your information and theirs, you could be in for a hard time. It’s in your best interest to get those reported accurately.
Underreporting income is also a common mistake. Some businesses make this error when they forget to report bartered transactions, or if they are paid using a virtual currency. Bitcoin, PayPal, and other new payment methods are increasingly attracting the attention of the IRS, so they should get a bit more of your attention as well.
If you over-report your income by not factoring in the cost of goods sold, or if you are reporting sales tax as if it’s part of your sales revenue, you could open yourself up to unwanted scrutiny.
Misclassifying Your Workers
Are the people who help you “get the job done” considered employees or independent contractors? If you’re not sure, you should definitely check with the IRS rules for worker classification.
Fudging the numbers by trying to avoid your payroll contribution is a great way to earn an unwanted visit from the government. They’re on the lookout for this, so you should be as well.
Deductions for Meals
Given how complicated most tax-related problems can be, this one is shockingly simple. You can only deduct 50% of your food-related expenses. That’s it. 50%. It doesn’t matter if you’re wining-and-dining clients or if you’re just getting something from the drive-thru while you’re on a business trip. The rules on this one are pretty clear, and it’s surprising how many people get nailed for a mistake that amounts to some very simple math.
The Home Office
In the past, many people treated the home office deduction as a stunt that was just asking for an IRS audit. Today, it’s estimated that almost 52% of all small businesses are operating out of a home, so it’s likely that the IRS doesn’t see this as a red flag.
If there’s a space in your home that you use for business purposes, then you’re in! It can be run from the kitchen table or you can have a separate room with a desk and a space on the wall for your Employee of theMonth plaque (spoilers – it’s you). The IRS now has two different ways to work this deduction, so read up and see how this applies to you.
You’re an expert at your job, and we’re experts at ours, so if all the above information is making you feel itchy with anxiety, perhaps you should get some help from a pro.
If you’d like to feel like you finally have some control over your tax liability, we can show you how to make that happen. If you’d like to get rid of tax-related dread and not be floored by a shockingly large tax bill that you don’t know how to pay, there’s a way to do that and we can show you how.
Get in touch with Core Group and let’s put together a plan that controls and limits your tax liability while you stay in the know about what you owe all year long