Tax mistakes made by business owners

Missed deductions. Opportunities overlooked. Pure and simple blunders. These things plague the taxes of corporate clients, accountants say. And that’s where financial advisors come in: they add value by spotting planning and compliance gaps and learning about common tax errors and their root causes, then educating clients and good questions for business owners to ask their accountants.

Tax blunders happen for a variety of reasons. Some people go headlong into a new business without asking for advice. On their own, they may not choose the most tax-efficient entity.

Sometimes they get too big for their first accountant but fail to move on.

“The client may have started with an accounting firm when his business was small,” says tax lawyer Adam Sweet, director of the Eide Bailly LLP national tax office in Spokane, Washington. no longer suitable and opportunities are missed.

Other times, an accountant may not champion a client’s cause, says Bruce Primeau, CPA and president of Summit Wealth Advocates in Prior Lake, Minn. to take the time to advise clients on how they can save taxes with their small business. Clients may need to push their preparer to seize opportunities. Counselors can be the ones who encourage their clients to push.

Deductions not taken
The combined federal and state tax rate on a successful client’s business income can approach 50% or even exceed it in some cases. So tax savings are built quickly with the right deductions, and conversely, lax entrepreneurs who don’t keep records will just as quickly lose.

Think about the mileage. At 56 cents per business mile for 2021, a few 30-mile round trips each week would reduce a high-end customer’s taxes by $ 1,200 for the year. Cheap, well-rated mileage tracking apps like MileIQ, QuickBooks Online, Everlance, and Hurdlr can capture these deductions.

“Probably the most missed deduction for the self-employed is the home office,” says V. Peter Traphagen Jr., Managing Director of Traphagen CPAs & Wealth Advisors in Oradell, NJ. Some independent clients don’t realize that they can deduct a portion of expenses such as rent, utilities, and home insurance based on the percentage of the residence used exclusively for business purposes, or claim $ 5 per square foot on a maximum of 300 square feet using the simplified method. Others are unaware that the desk can be a designated section of a room. “The space does not need to be demarcated by a permanent partition,” reads the 2020 edition of IRS publication 587.

Many business owners are reluctant to apply the home office deduction because they fear it will be an audit trigger. “I have to convince them that’s not the case,” says Traphagen, noting his more than 30 years of practice.

A downside for homeowners, however, is that when they sell their home at a later time, tax will be payable on the depreciation of the commercial space. This rule will not apply if the customer is still using the simplified method to claim the home office deduction.

To read more stories, click here

About Sandy Fletcher

Check Also

Home Gym Design Tips: Supporting Physical and Mental Well-Being Indoors

Home Gym Design Tips: Supporting Physical and Mental Well-Being Indoors Courtesy of PENT. Aptitude To …

Leave a Reply

Your email address will not be published.