Tax time can be taxing for everyone, but small business owners have it particularly hard. They don’t have an army of accountants and tax experts at their disposal, so they put on their “tax” hat when they have time, and most often are working blind.
Small business owners shouldn’t think they can “pull a General Electric” and manage to pay no taxes, said Greg Crabtree, founder of Crabtree, Rowe & Berger, PC, a Huntsville, Ala.-based CPA firm focused on entrepreneurs and author of “Simple Numbers, Straight Talk, Big Profits!” (Greenleaf Book Group Press, 2011).
“If you think you’re going to get rich by avoiding taxes, that is a myth,” Crabtree said. “They are a necessary evil. The way to get rich is to focus on wealth-building strategies.”
Crabtree said one major misconception is that taxes are an end-of-year worry.
“If you just box everything in a shoebox at the end of the year and send it to the CPA, you’re doing your business a disservice,” he said. “You should be collecting that data on a monthly basis, at least, and using it to run your business more efficiently. “
Here are a few small business tax myths that are common among small business owners.
Tax myth: You can avoid taxes by investing in equipment.
“You can’t just spend your way out of a tax bill,” said Crabtree.
“If you spend $300,000 on a piece of equipment to eliminate $100,000 in tax liability, you’re still spending money if you have to borrow to buy that equipment, and that is costly. If you need the equipment, that’s fine. But don’t buy unnecessary equipment and burden yourself with debt. Successful entrepreneurs only spend a dollar when they absolutely have to spend it,” he said.
Tax myth: Write-offs are just for big business.
“Don’t think that write-offs for research and development are just for large corporations,” Crabtree said. “Research and development credits aren’t just for the big boys, and they can save a small business owner real tax dollars.”
Tax myth: You can avoid paying taxes by having employees work as contractors or freelancers rather than full-time employees.
While this strategy can offer legitimate tax savings, it has to pass certain tests.
“If the employee is legitimately working on a 1099 basis, that is fine, but there are questions about whether the employee is required to show up for work at a specific time at a specific location every day,” said Greg Jones, CEO of BookKeeping Express, a company offering tax and accounting service franchises based in Tysons Corner, Va.
Tax myth: The IRS is targeting small businesses.
“There may be legitimate deductions for auto and home office use that they are afraid to claim because they think it will set them up for an audit,” Jones said. “But if they’re legitimate and you have the proper documentation, use it. The big guys do, so why not you?”
Don’t be afraid to look for hidden tax deductions, said Glen Weilandt, director of business services and franchise business development for Fiesta Auto Insurance, a Huntington Beach, Calif.-based firm offering tax and auto insurance franchises. “If you’re storing your supplies in your garage and can take that as a legitimate business deduction, it is not necessarily going to raise red flags,” he said.
Tax myth: Startup costs are not tax deductible.
There are some startup costs that can be amortized over time.
“If you start planning to open a franchise in July but start planning the January before, many of those costs can be amortized over years if you plan the purchases of equipment such as computers properly and begin pay for them after you open the doors,” Weilandt said.
Source: http://www.businessnewsdaily.com/business-tax-laws-1850/