10 Common Tax Mistakes Startups Make

Tax deadline is just around the corner. Sometimes even a straight-forward individual return can be quite a challenge. Things get more interesting when you add the business complexities associated with a small business or a startup. For many new entrepreneurs, filing taxes can be a real learning curve.

Most of us are aware of IRS audits and the associated pains. But what most entrepreneurs often don’t realize is that they often overpay Uncle Sam by committing small mistakes and overlooking various tax deductions.

Keep on reading to discover common tax mistakes startups make and as a result leave hundreds, even thousands of dollars off the table — and how to avoid making them yourself.

Don’t Overpay Your Taxes – Mistakes 1 to 5

In the SlideShare presentation below, we’ve listed 5 common tax mistakes startups (and small-businesses) make. Please check it out (and save yourself money, time and headaches.).

So the main takeaway from the above presentaton is, and we cannot stress enough, that you must keep adequate records. For up to 6 whole years. Don’t throw your receipts in a shoebox, or a drawer — receipts fade over time and become illegible.

Instead, take advantage of the modern technology. Use your mobile phone to take photos of the receipts and store them on the cloud.

We don’t want to lose track of the topic but if you are interested, keep reading and in the end we’ll talk about our service that transforms the way your capture receipts and the paper in your life.

Bonus: 5 Additional Mistakes Not in the Presentation

Here are 5 tips that are not in the SlideShare presentation.

6. Mixing Business and Personal Expenses – Do not blend your personal and business expenses — keep them separate. Open a bank account for your business and maintain separate income statement and balance sheet.

7. Forgetting Employee Expenses – Your employees have 60 days to substantiate any business related expenses. Keep sufficient documentation (expense reports from employees along with receipts), in case IRS asks.

8. Mixing Equipment and Supplies – It’s surprising how many entrepreneurs don’t know the difference between equipment and supplies. Supplies are items that are typically used up during the year (printer paper, notebooks, pens). Equipment items are higher-value and last significantly longer than one year (MacBooks, servers, furniture). There are a couple of approaches to claiming equipment deductions. You can either claim the full-amount (up to max limit) in the year of purchase or claim a portion for each year equipment is in use.

9. Choosing the Wrong Legal Entity – You may register your business as a sole-proprietor, partnership or some form of a corporation. The ‘right’ choice depends on the type of business activity you want to engage in. There are different tax laws associated with each legal entity. Talk to your accountant or CPA to determine the right structure for your business.

10. Not Paying Quarterly Taxes – Whether or not you are required by the IRS to pay quarterly taxes, it’s a very good practice to do so. A year-end tax bill can often shock and leave many entrepreneurs reeling.

If you have committed some of these tax mistakes, don’t worry. You are not alone. You may find some comfort in the fact that IRS only audits a small number of returns and if you have kept adequate and sufficient records, they are not quite the nightmare. Going forward, limit your chance of audits by avoiding at least two mistakes: 1) not keeping good records and, 2) not seeking professional help. Don’t be penny-wise and pound-foolish. Talk to a professional.

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So what’s the best way to keep your receipts safe? Here’s how one entrepreneur we know keep track of expenses:

“Whenever I get a receipt or really any paper I would need later, I quickly take a photo, make some notes and email it to myself. Then when I need them, I can search my inbox. It works for me because I don’t go through a lot of paper receipts… probably 15 a month”

This approach is messy. Pictures of receipts cluttering gallery images. Or the pains of locating a specific receipt in inbox? How about failing to properly mark the receipts and losing them forever under piles of emails?

Go Paperless With Paperistic

Paperistic is an online service and a mobile app that lets you quickly capture receipts and other paperwork in your life and store it securely on the cloud. Your paperwork is fully searchable and available anytime, anywhere on your smartphone, tablet or web browser.

Here’s how it works: Take a picture of any paper and post to Paperistic — it’s that easy. Paperistic will automatically separate the paper from the background and enhance the quality. Share with your clients, boss, friends or the world — using Google Drive or Dropbox styled sharing.

If this excites you, visit our homepage and enter your email to get early access to the beta version.

www.paperistic.com 

 

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