Jaime Jay asks about the Biggest Tax Mistakes Business Owners Make
What would you say are some of the biggest tax mistakes you’ve seen in your experience?
The biggest tax mistakes we see is, as far as in my world of tax planning and running a business and stuff like that, is people, number one, they don’t plan. Okay. They’re just running their business, and they’re not thinking.
So, people spend time, they’re going to buy a car. They spend time, they research what kind of car, in the old days it was consumer reports, right? Now, it’s Google. So, no one spends time planning on things that they could be doing to save money in their taxes. These are tax mistakes that can be costing tens of thousands of dollars a year.
Another big mistake we see is the wrong entity. What type? Are they a sole proprietor, are they an LLC, are they an S corporation, or corporation? What kind of planning went into that? Was it, “I called my attorney, and I told them I wanted to open up a business”? And the attorney’s going to look at it from a legal perspective, and he’s going to choose what’s best from a legal perspective.
Planning On Your Entity Type
But, if you take some planning, and maybe you consult your CPA on that, the two of them can come together and say, okay, well, maybe you can get the best of both worlds. Maybe you could be an LLC, could be good for liability protection, but you could tax yourself like an S corporation or a corporation. So, those are the two big mistakes.
Home Office Deduction
Then, we get into some other mistakes that cost people money. Like, you’re working out of your home and you’re not taking a home office deduction, “Oh, I heard it was a big red flag.” It’s not a red flag.
Yeah I heard that.
The IRS even came out with a safe harbor a couple of years ago, as far as your home office is concerned .
How could you write off your home office? Are you going to get audited?
Absolutely not. As long as you do it right, and you document everything you’re doing, you’re allowed to do it. The code is huge. The code allows you to do a lot of things. If you do it, make sure you document it.
And once you have that home office, now all of a sudden you travel from your home to your client, it’s deductible. If you don’t have an office, it’s not. Or, maybe your other office is 60 miles away, so now you make all that mileage deductible.
You have to spend so many hours a week working out of it, but there’s not a business owner I know that doesn’t spend countless hours a week doing work from home.
Well, I work, this is mine. This is where I live right here.
In this little studio, which is a third bedroom, but this is where I live.
YOU SHOULD REVIEW THE THE NEW TAX LAW CHANGES WITH YOUR CPA BEFORE IMPLEMENTING ANY TAX PLANNING STRATEGIES.
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