For me, Small Business Week sort of came and went this year with little notice. In fact, I just now got around to watching the IRS webinar that came out on May 15th called “Avoiding the Biggest Tax Mistakes.” The video is now archived and available through the IRS video portal here.
This video may be useful for young entrepreneurs and teenagers who are interested in one day having their own business. I say this because it just scratches the surface of business tax knowledge, and anyone who has already begun operating a business absolutely must understand these basic principles. The entire video runs about 42 minutes in length; the first 15 minutes cover the bullet-point topics below, and the balance of the video is a live Q & A session:
- Keep good records (three years is the general rule)
- Report all taxable income (all income is generally reportable unless specifically excluded by law)
- Keep business and personal expenses separate
- Choose your tax preparer carefully (be skeptical of promises of outcomes that seem too good to be true)
- Always review your tax return for accuracy
- Consider e-file options
- Do your homework
- Don’t fall prey to tax scams
When asked what he thought should be the main “take-away” points from the webinar, the presenter emphasized the importance of the first three (keeping good records, reporting all income, and claiming only business expenses on Schedule C).
Another point that was mentioned is that too many small business owners rely on word of mouth when it comes to business “write-offs.” Just because a buddy writes off a certain expense every year doesn’t mean it is legitimate. One real-life example of this is the rumor that you can put your file cabinet in one room of your house, your desk in another, your printer in another, etc. and basically claim the entire square footage of your home as “business use.” It doesn’t even make sense that the IRS would agree to this, and that should be the first indication that it is bogus.
Not everybody has a very good feel for what “seems” right or wrong, so that’s why it is critical to seek sound advice from a respected tax professional. When it comes to running a small business and avoiding IRS scrutiny, it is never a good idea to “shoot from the hip.”