To avoid any hassle while doing your taxes, be sure to follow these guidelines for business expenses.
Maintain separate business Checking and Credit Card Accounts.
Keeping your company and personal finances separate might help you keep better track of your money. Otherwise, it might be a hassle to sort out which costs are business-related, and which are personal.
If you have commingled company and personal cash, you may no longer be protected from personal responsibility if your firm is organized as an LLC or corporation. Your personal property may be subject to garnishment by your creditors.
Your LLC or corporation might be challenged on the grounds that it is not a distinct legal entity.
There must be a business purpose for the costs.
The distinction between business and personal spending is critical knowledge for owners of small businesses. If you run a business, you can minimize your taxable income and tax liability by deducting certain costs.
You can’t deduct individual costs from firm revenue. This is why you should never use a personal bank account or credit card for company transactions. While it saves time, you might end up paying more in taxes.
The expenses must be deductible.
There are several allowable tax deductions for businesses. But not all costs are the same. There are two categories of company costs: those that may be deducted and those that cannot. When calculating your tax return, you can deduct legitimate company costs from your overall business revenue. As a result, you’ll owe less in taxes since you’ll have a lower taxable income. There are some costs associated with running a firm that just can’t be subtracted from revenue. This implies that you will have to report and pay taxes on them as part of your taxable income. In order to prevent any issues while filing your taxes, it is crucial that you understand what types of income tax deductible and which ones are not.
Tax accounting vs financial accounting.
There are two different sets of accounting principles in use in the United States. First, there are GAAP (Generally Accepted Accounting rules) for financial statements, and second, tax accounting rules.
Companies are required by GAAP to account for all financial transactions in accordance with a standardized set of accounting principles, rules, and processes.
When calculating tax obligations and financial statements, balance sheet elements can be handled in a variety of ways. For instance, in preparing their financial accounts, businesses can choose to record their inventory using either the first-in, first-out (FIFO) or the last-in, first-out (LIFO) technique. The second method lowers tax liability for the current year.
Maintain Accurate records!
Keep your spending records in a safe place so you can verify every deduction you make. “If a business expense cannot be supported due to lack of documentation during an audit, that may end up needlessly causing additional tax liability.
Let us know if you need any help.
Contact Surya Padhi at Sure Financials for any questions and clarification. Surya Padhi is an expert who keeps current on tax law changes as well as a member of the National Association of Tax Professionals National Association of Tax Professionals (NATP) and National Association of Enrolled Agents (naea.org). Visit Welcome | Sure Financials & Tax Services, LLC (surefintaxsvs.com) for more information and contact us by calling +1 908.300.9193.
