Learn the common mistakes small business owners make on their taxes that end up costing…
There’s one main reason start-up companies often end up paying more taxes and losing money: Lack of experience.
Attorney and CPA for the IRS Richard M. Colombik warns, “You could sink your business. It might put you in a position where your profitability is so small it is not worth the effort” required to actually run your own start-up. In fact, he states, you’d make more money getting a job somewhere else.
Small-business entrepreneurs are bold, daring, and experts in their industry. Often, the owners of small, local businesses try to “do it all,” balancing hiring staff, training, taking care of clients, launching a website, drumming up PR, and a million other things that make the highspeed life of a small business owner fun and rewarding. However, trying to be a jack-of-all-trades can lead to costly mistakes.
How Can a Small Business Owner Avoid Mistakes?
Here are some of the tax and accounting mistakes that cause entrepreneurs to pay more taxes and lose more money than larger, established corporations.
1. They try to do their own small business taxes.
If you’re a small business-owner or start-up entrepreneur, odds are you have a specific field of expertise. Maybe you’re the best dentist in Raleigh, or a creative advertising agency. As a professional accounting film, we hired experts to build our website, and we have our legal work covered by expert lawyers. It’s always safer and wiser to have a high-level professional CPA work on your annual taxes. We know how every tiny loophole to save your business money; we know every invisible pitfall to avoid.
Utilizing a service like Turbo-Tax may seem less expensive, but in the long run, having an experienced CPA on your side will save time and money. Furthermore, as you build a professional relationship with your company’s CPA service, we get to know your business on a personal level. We can help with all the little daily accounting tasks that build up over the year and cost you big-time when tax reason rolls around.
2. They are too busy to keep proper records.
It’s a common story: Entrepreneur walks through CPA’s door a week before taxes are due, carrying a book of receipts with a strained look on their face. While many small businesses utilize the incredible organizational powers of Quickbooks, it’s easy to forget to input records daily. They miss out on easy tax breaks.
A professional CPA spends years researching and working with tax laws and tax breaks. Turbo-Tax may be able to help you turn in basic small business taxes, but your personal CPA company will work tirelessly to make sure you’re getting the most for your money.
3. They miscalculate the fixed cost and variable cost analysis.
As a small-business entrepreneur, you know your field better than anyone. Likewise, no one knows how to handle money like a seasoned accountant. Not only can we help with your taxes, we can help you analyze your spending, budget, and pricing to ensure your business will remain viable. Especially as your company grows, enlisting the help of an accountant is critical for helping structure your business model.
4. They choose to be a C-Corporation.
Picking the correct legal entity for your business is critical for your bottom line. Many start-ups establish themselves as a C-Corp, S-Corp, or LLC. Unfortunately, if an entrepreneur didn’t have a solid understanding of the tax code for each type of company, they may struggle with higher taxes later on. Particularly, this is a problem for entrepreneurs who launched their company as a C-Corp, as C-Corps are sometimes liable for “Double Taxes.”
This doesn’t mean you shouldn’t launch as a C-Corp entity, but rather that you should have a solid understanding of the benefits and pitfalls of each entity, and which one fits best for your business. Only very specific types of businesses benefit from being a C-Corp. A good CPA can help you identity which entity will be the best fit for your company’s success.
5. They raised capital without fully understanding the tax code.
How did you obtain the starting capital for launching your business? Do you have wealthy investors who act as partial owners? Did you run a Kickstarter Campaign? Are you bootstrapping from the ground up? Each of these methods of obtaining start-up capital is subject to a different set of tax laws, which directly impact the best tax entity for your company.
Contact an Experienced Small Business Accountant to Help with Your Start-up
The accounting team at C.E. Thorn, CPA, PLLC understand the difficulties new businesses face. Let our team help guide you through the difficult process of paying taxes, obtaining permits, and preparing payroll and bookkeeping.
We can be reached by completing the online contact form or by calling 919-420-0092.