Owning and operating a small business can be a dream for many. Unfortunately, during tax time, owning a small business can be a nightmare. Today, more and more people are choosing to start small business even though filing taxes can be so intimidating. Thankfully, proper understanding can make tax time less overwhelming. Here are a few small business tax myths, debunked, to help you prepare and understand the process of filing your taxes.
Home Office Deductions are Dangerous
One common myth many people believe is that if you deduct a home office, you are increasing your risk of being audited by the IRS. In reality, a home office is a legitimate deduction for your small business – as long as you meet the requirements.
For example, to take advantage of the home office deduction, you need to have a separate room in the house that is used for your small business. This room can be a bedroom, but it cannot actually have a bed or bedroom furniture in it. Therefore, you cannot take a home office deduction if your desk and computer are located in your bedroom, a guest room, or a bonus/play room in your house.
Also, to qualify for the home office deduction, the home office must be used solely for business purposes, meaning you or your family cannot use the office and computer for playing games/completing schoolwork. Basically, your home office is for your business ONLY.
All Startup Costs are Deductible
There are many expenses associated with starting up a business. Known as startup costs, you may think these expenses are deductible when it is time to file your taxes. While you cannot deduct all, SOME of your startup costs are deductible.
Startup costs may include the following:
- Employee wages
If you had less than $50,000 in startup costs, you can only deduct about $5,000 of these costs when filing your taxes. Of course, rules and guidelines change yearly, so it is smart to contact the IRS if you have more in-depth questions.
Small Business Taxes are Simple and "Not a Big Deal"
Finally, many small business owners believe the misconception that filing their taxes is simple and "not a big deal." Unfortunately, this is not true, since your business taxes should be taken very seriously, especially if you want to avoid paying penalties and fees.
While it is possible to file your taxes on your own, hiring an accountant service is imperative if you have any questions or concerns.