Tax time can be a nightmare for some small business owners. Expenses you didn’t realise existed cropping up or not understanding whether an expense is a business expense or not. Not running a tight ship and keeping control over things over the year can make it challenging to deal with tax season.
Many people scramble to get the information they need for filing their taxes just before they are ready to submit them; this can be the wrong way to approach tax season since there will be surprises, but businesses are likely to remain unprepared.
Owners need to understand that they should monitor their books regularly. Going through the books every month can help them gain a better understanding of the business’ earning situation and expenses and help them stay prepared for tax season.
Understanding business expenses are also very important, and while all entrepreneurs understand the concept, not everyone finds it easy to distinguish the different type of business expenses.
Types of Business Expenses:
Entertainment and Food-Related Expenses
While many entrepreneurs save receipts from business lunches and dinners, this can be troublesome for many. If the business owner pays in cash or with a personal credit card, keeping track of these expenses can be tricky. One way to keep track of such costs is to save all business-related receipts with the clients’ names and other details. Also, use a business credit card for such transactions to avoid confusion.
Designating a car or truck as a business vehicle is another essential thing that can quickly go wrong. Most experts suggest that this should be done only for a good reason, and else the entrepreneur ends up dealing with standby charges on their tax return.
The best way to deal with this issue is to use a separate car or truck for personal use and charge mileage for it. It would be a better tax option as it is an expense for the company.
Home Office Expenses
Many expenses related to home offices can seem like personal expenses, so it can be easy to forget about them. However, keeping track of expenses is essential here too. Utility bills, maintenance-related expenses and repair bills can also add up apart from mortgage payments and interest. Save all receipts here, too, to avail the maximum benefits you can. Some expenses cannot be classified as business expenses while others can, and it is essential to distinguish between them.
While there are many ways to deal with the stress of tax time, remember that being prepared and knowing what to anticipate can make it a lot easier for the entrepreneur and the business.