6 Common Mistakes Business Owners Make on Their Taxes

Filing your small business’s tax return may be a dreaded task you’re tempted to put off until April 14, but we advise that you don’t. That’s because mistakes are made when you’re in a rush, resulting in interest charges, penalties or unwanted attention from the IRS. Mistakes can be avoided by being prepared and planning ahead. Here are the 6 most common tax mistakes business owners make:

Mistake #1: Filing late

It’s important to file your taxes on time to avoid a 5 percent per month penalty by the IRS (that increases until the return is filed), a 6 percent interest penalty and a late payment penalty. You can request a filing extension, but you will still need to pay a portion by the original due date. It’s better to avoid the headache, be organized and file on time.

Mistake #2: Not paying estimated taxes during the year

If you are a sole proprietor, S corporation, are self-employed or a partner and you expect to owe $1,000 or more when you file a return, you are required to make estimated tax payments throughout the year. The same is true if you are a corporation expecting to owe $500 or more in taxes.

Mistake #3: Not having organized, visible financials

Using Excel to track your income, expenses and receipts might suffice when you are first starting out, but once you get bigger you will need a program that is more robust. Your financials need to be up-to-date, accurate and all in one place so you can make good tax and cash decisions.

Mistake #4: Intermingling personal and business expenses

It’s important to keep your business expenses separate from your personal ones. You can do this by having a separate bank account and credit card for your business, and always use your business credit card for business expenses. Even if you purchase both personal and business items at an office supply store, use different credit cards to pay for them so you can keep those expenses separate.

Mistake #5: Not tracking expenses

Throughout the year you need to save receipts, log the business miles you put on your car and track your expense categories. Did you know that only 50 percent of certain business meals are deductible? Platforms like QuickBooks and Freshbooks can help you keep track of expenses, and apps like MileIQ can track your business mileage.

Mistake #6: Not getting professional help

It may be tempting to save money and do everything yourself, but unless you know what you are doing, it could cost you time, money and headaches in the end. Consider consulting with a bookkeeper or accountant throughout the year to make sure you have good processes in place come tax season.

Donohoo Accounting Services has more than 20 years of experience helping clients with their tax and financial issues. Advising small businesses on their taxes is what we do best. If you have any questions about preparing your taxes or would like to know more about the services we provide, please call us at 513-528-3982 for a free consultation.

contact Donohoo Accounting

What You Need to File Your Business Taxes

What could be difficult about filing this year’s business income tax return?Plenty. Not to worry though, Donohoo Accounting Services is here to help! Every business has unique ways to best prepare taxes and you’ll need an accountant to help find all your deductions, but here are some tips about the three kinds of records your accountant will definitely need.

Income/Earnings Records

Because most businesses use electronic means to capture every transaction of the sale of goods or services, income records should be easy – though perhaps voluminous – to collect. Be sure to review your business’s income records, however, to look for any obvious errors such as missing information. Complete income records should include:

• The gross amount of each individual sale,
• Any returns or discounts credited against your business’s income,
• Interest earned from business bank accounts (from your year-end bank statement or Form 1099-INT) and,
• Any other income from non-sales sources.

Documentation of Expenses

Perhaps the most documentation required for your businesses tax filing falls into the category of expenses. You must account for more than a dozen different kinds of expenses on your tax form. These include all employee wages, rent or lease payments (including vehicle leases), insurance, travel, office supplies,and advertising and communications (such as telephone, fax and Internet). Additionally, within these expense categories there are sub-categories. Be sure to consult with a tax professional for a complete list of expense categories to be sure you don’t overlook any potential deductions.

Inventory Details

If your business maintains a physical inventory of goods, you will need to have documentation of your inventory totals at the beginning and end of the year along with its dollar value. As well, be sure you also have records of any inventory purchased over the course of the year. Remember to account for any inventory items that were used for business or personal needs, and the value of any supplies or materials on-hand that were purchased to operate the business. For businesses that track inventory electronically, these records should be easy to access. But again, remember to check – and correct – any errors or irregularities between your inventory records and your actual physical inventory.

The professionals at Donohoo Accounting Services have been helping small businesses file annual tax returns for more than 20 years. For a free consultation, call Donohoo Accounting today at 513-528-3982. Check us out on Facebook, Twitter and LinkedIn for our latest updates and tips!

Prepare Now for Filing Your Personal Taxes

Getting ready to file your personal income taxes can be a daunting task of collecting information. But don’t worry, the pros at Donohoo Accounting Services are here to help! The information required to file your income taxes neatly falls into four categories: Your personal information, dependents’ information, income sources and deductions.

Your Personal Information

While most people may have this information ready at-hand for other purposes, others may have to locate it. Either way, you will need it to file your federal, state and local income taxes. Be sure to have your Social Security number or tax ID number, as well as the full name and Social Security number or tax ID number for your spouse if you are married. If you have this information in written or printed form, be sure to shred the document after your tax preparation for security purposes. Professional accountants take very good care to do this.

Dependent Information

You will need the full names of your children or dependents along with their Social Security numbers or tax ID numbers. Having either their Social Security cards or their names and numbers in written or printed form may make filing easier for your tax preparer. However, as mentioned above, be sure to shred the document after your tax preparation for identity security purposes.

Income Sources

This is where collecting income tax information starts to get tricky, but you can do this!

W-2 Forms –If you and your spouse work a regular full-time or part-time job, your employer will issue a W-2 Form that shows your earnings and tax deductions for the year. Some employers mail W-2 Forms to their employees while others provide access to an electronic document online that you can download and print. Either way, secure a paper copy of your W-2 Forms for yourself and for your spouse.

1099 Forms –Companies issue this form to contracted workers who earn more than $600 within one tax year. Additionally, you may receive a 1099 Form if you received income from non-work sources such as investments, rental income, prior years’ state and local income tax refunds, lottery or gambling winnings, unemployment compensation or retirement benefits. In addition to the 1099 Form, you may be required to provide additional documentation for income earned outside of your primary job. Your tax professional can provide details.

Deductions

Although this area of tax filing seems complicated to most people, taking deductions can reduce your tax liability and may increase the likelihood of your getting an income tax refund. More than a dozen kinds of income tax deductions can be taken, but the most popular deductions are for qualified charitable contributions, home mortgage interest, educational expenses and medical expenses. While you may receive year-end statements from the institutions that received your contributions or payments, consult with your tax professional for details about the kinds of records you need provide when claiming deductions.

To help you find the most deductions and keep your personal information secure, contact Donohoo Accounting Services at 513-528-3982 for a free consultation. We have servedand earned the trust of individuals and small businesses throughout the Greater Cincinnati area for more than 20 years.

Check us out on Facebook, Twitter and LinkedIn for our latest updates!

Get Your Money in Order for the New Year

This year is quickly coming to a close. Get ahead of the game and get your money in order for the new year. Don’t know where to begin? No worries! Here are some helpful tips.

Get Organized

Organize Concept Metal Letterpress Word in Drawer

You can file taxes after the new year, so now’s a good time to get all your ducks in a row. In January and early February, you’ll be receiving important documents in the mail including your W2, mortgage interest statement (1098), or student loan interest statement (1098-E.)Most companies, by law, have until January 31 to mail statements, so keep an eye out.

Designate a single location where you’ll keep these documents so they are easily accessible when you’re ready to file taxes. You can use a folder, drawer, box or other container. Put a large “taxes” label on it and use the container for tax-related documents only, not other mail or bills. But you may want to keepit near where you sort mail, so you can immediately put the documents in their home.

Then start gathering other items you’ll need for filing taxes, including charitable contributionand expense receipts. Qualified expenses depend on your situation, but could include expenses related to childcare, medical, job (mileage, supplies, relocation) and education. Donohoo Accounting Services can help you navigate the complicated tax structure. In addition to income tax preparation, we handle payroll tax prep, tax levies and liens, back taxes, end tax penalties, estate tax return preparationand more.

Make Year-End Charitable Contributions

Many charities do a final fundraising push at the end of the year, so you’ll probably receive solicitations asking for support. If you want to help non-profit organizations while also possibly reducing your taxable income, make your donations by December 31. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the yearwill count in that year – even if the credit card bill isn’t paid until later. You’ll want to make sure the charity is eligible. Many times, the charity will note its “501c3” status, which is IRS speak for tax-exempt. You can also use the IRS Tax Exempt Organization Search.

Take an Assessment of Where You Stand Financially

Magnifying glass showing assessment word on grey background

Now’s a good time to take a hard look at your income, debt, expenses, retirement funds, college and emergency savings. Are you on track to meet financial goals? If yes – great! If no – why are you falling short? To properly move forward into the next year, you need a realistic picture of where you are now. Put pen to paper and write down all the numbers. It helps to see everything in black and white.

Make a Financial New Year’s Resolution (Or Better Yet – Create APlan You’ll Stick With All Year)

Once you know where you stand currently, you can create a plan for the upcoming year. Perhaps you want an emergency savings fund. You never know when the furnace is going to go out, someone in your family has a medical issue or there’s a company layoff. Experts say you should have enough emergency savings to cover three to sixth months of expenses. Maybe you have all your financial bases covered but want to take an exotic vacation? Set the goal, create a plan and start saving for that overseas beach trip. Although it’s a busy holiday season, set aside time to get your money in order for the new year. Once you’re ready to file taxes, turn to Donohoo Accounting Services, locally owned and operated by Cincinnati native, Duane Donohoo.