Common Misconceptions for Business Owners

It seems everyone is an expert at owning a business when you tell them you are starting your own. While there is a lot of truths out there, there is also a fair amount that is flat out wrong. It is never a bad idea to sit down with your accountant/CPA at the outset to get a good idea of what you should be doing to protect yourself, your assets, and to build a plan for success! There are few myths about owning a business that we would like to debunk. Call us today if you have any questions!

  1. All start up cost are immediately deductible
    Start up costs refers to expenses made before operating your business. Start-up costs include both start-up and organizational costs. Examples of start-up costs are purchases made for advertisement, travel, and training. For 2011 and 2012 tax years, taxpayers can choose to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid after October 22, 2004.
  2. Overpaying the IRS will make you audit proof
    It does not matter to the IRS if the taxpayer chose to pay the right amount or overpay their taxes. The best way to audit proof yourself is to appropriately document your expenses and consult with your accountant for advice. Record keeping is essential in any no-change audit. The more the better!
  3. Being incorporated allows you to obtain more deductions
    Individuals who choose to be self-employed qualify for several of the same deductions that incorporated businesses do. As a small business, being incorporated can be a handful along with an unnecessary expense. Many small business owners who incorporate does not make an earning for a couple of years and they are burdened with corporate tax payments and no income. This is NOT to say that incorporating doesn’t make sense for all, but it is a conversation that you should first have with a CPA to see what set up will be most advantageous for you.
  4. As long as you are an LLC or incorporated, you are completely safe from liability
    There are at least a few ways in which you can lose your limited liability status, but the easiest way to do so is by not treating your business as a separate entity as you. This means keeping checkbooks separate, and not paying for personal expenses from the business checkbook, and vice versa. We only hope that our clients do not find themselves in legal trouble, but if they do, and they are commingling funds, they may lose that liability protection from the LLC.
  5. Home office deduction is a red flag for audit
    This is outright false. As long as you maintain accurate records that meet IRS requirements, you are far better off claiming any and ever deduction you are eligible for. In fact, the IRS is making the Home Office deduction even easier! See my other blog post regarding the details.
  6. If you are not eligible to take the home office deduction, other business expenses are not deductible
    As a business owner, you are still qualified to take deductions for company related supplies, phone bills, travel expenses, printing, and other costs related to operating a home-based business, whether you take the home office deduction or not.
  7. Requesting an extension on your taxes is an extension to pay taxes
    Extensions only allows taxpayers to extend their filing date. Penalties and interest begin to accumulate starting the date your taxes are due.