BUILDING BLOCKS FOR SMALL- AND MEDIUM-SIZE OPERATIONS
B U S I N E S S B A S I C S
Hamilton, a certifed public accoun-
tant (CPA) and senior tax manager
with Decosimo CPAs, a tax and
accounting consultancy serving thou-
sands of businesses and individuals
from offces across the country.
1.
Mixing business and
personal accounts
and expenses.
One of the biggest errors that small
businesses, especially Sch. C entities,
make is what is called "comingling" of
accounts. While having separate bank
and credit accounts is not strictly
required, it is advised by most tax pro-
fessionals, because it not only makes
tax time much easier, it also ensures
much more accurate bookkeeping
overall, as well as fnancial reporting.
At the very least, Hamilton says,
business owners should maintain
an accurate balance sheet, so that
expenses can be more easily identifed.
Among the tax advantages of main-
taining separate fnancial accounts
for the entity is that all expenses and
income are more easily identifable,
whereas in a mingled account, deduct-
ible business expenses can be missed,
and income can often be missed and
end up unreported.
2.
Misclassifying
employees and
independent contractors.
The rules for determining whether
a person should be considered an
employee or a contractor are not as
vague as many small business own-
ers may think. The IRS has issued
general tips for identifying which
they are, but it boils down to a few
key points:
• Does the business dictate how,
when and where the person does
the task they've been assigned,
including working hours?
• Does the business reimburse for
expenses, or provide tools and
supplies at no additional cost to
the person?
O
wning your own busi-
ness can be rewarding,
but as most entrepreneurs
know, it also means a lot of work,
much more than a traditional salary-
based job working for someone else.
While many small business own-
ers may consider it a labor of love,
there's defnitely one aspect that very
few appreciate: doing the business'
income taxes.
Whether a business is incorpo-
rated and fles returns as an entity, or
is an LLC and the owner fles a Sched-
ule C with their personal 1040 income
tax return, there are many potential
areas for errors, from misreporting
income or expenses, to missing poten-
tial money-saving tax credits.
Here are some of the most com-
mon tax mistakes that small busi-
nesses make, according to Jason
Top fve tax
mistakes that
small business
owners make
By Isaac M. O'Bannon, Managing Editor, CPA Practice Advisor
The best way to avoid taxophobia is to keep good
records of expenses and correctly label employees.
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