It’s time to start planning for 2023, and before you know it, we will be talking about filing your 2022 taxes. Before you get involved in end of year planning, take a couple of minutes to ensure you have the right documents in place for that tax prep time. It will save you a headache in January, and the information form these documents can help you plan better.
There are a couple of documentation mistakes that are common, so I thought I’d mention them before we get focused with helping our clients plan their success for 2023. These may seem small, but the financial impact can be significant.
Mistakes with Estimated and Employment Taxes
In general, you will need to make estimated tax payments throughout the year if you expect to owe $1000 or more when your tax return is filed. This mistake is one that new and growing businesses tend to make the first time their business reaches that point, but it can also be something that slips a busy business owners mind. It’s a great reason to hire a tax and accounting advisor. If you don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.
It’s also easy to forget to pay your share of the employment taxes. Business owners are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers. If you are a sole proprietor or a single member LLC, this also applies to you for your own employment taxes. If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.
Personal Vehicle Use Deductions
Most entrepreneurs do some travel in their personal cars that is related to business. While it’s not a good idea to mix your personal and business expenses all of the time, the use of your personal vehicle is sometimes unavoidable. These costs can add up quickly and all legitimate business driving expenses are deductible, as long as you have the right documentation. If you have vehicles that are owned by your company, you may forget to record and deduct those periodic business-related trips you take in your own vehicle. Are you tracking and deducting all of the allowed deductions?
Examples of legitimate deductible vehicle expenses for a personal vehicle include mileage and gas for business and client-focused activities. We’ve seen owners forget that they can deduct the cost of mileage and gas if they need to use their personal vehicle to check on the progress of construction at their new location, or Realtors who overlook recording travel to preview a home or commercial property. And there are other examples as well. Just make sure you have the right documentation, which includes logging the dates and locations of your travel as well as the business purpose and mileage. And make sure your employees have the same level of documentation for the mileage reimbursements you provide. It’s a good idea to collect that before you pay out the reimbursement.
Tax mistakes that are costing business owners money are more common than you think. We can find as much as $10,000 in overpaid taxes for many businesses. While your situation may be different, isn’t it worth having us check last year’s return to see if we can find you some money? Set up a 15-minute call with us and let’s find out!