A business owner must tread lightly when dealing with the Internal Revenue Service. When an entrepreneur makes a mistake on his or her taxes, they will often have to spend a lot of time and money fixing the issue. The biggest problem many small business owners face is they do not claim legitimate deductions. Here are three ways an entrepreneur can make sure that his or her write-offs are legitimate.
Common sense: In many cases, one can use basic common sense to understand if they have a legitimate deduction. For instance, credit card processing accounts are a business expense that one can claim without worry. In other cases, one can determine if their expense is not related to the business such as a lunch with a friend or family member. Remember, a necessary item such as a merchant account will not draw scrutiny by the IRS when one writes them off for their business.
IRS: When a taxpayer need answers to a question, they can contact the IRS via phone or email. With this step, a business owner can determine if they can write off an expense such as a merchant account. Remember, tax issues are complicated and going directly to the source will solve the problem.
Professional: A small business owner should have an established relationship with an accountant or CPA. If this is the case, an entrepreneur should ask his or her tax professional for advice. This will certainly yield the correct answer as a CPA will know the state and federal tax laws. Without a doubt, when looking for the answer, one should ask a professional with years of experience.
When deducting items from a tax return, one must exercise caution. While some write-offs are obvious, others will be tricky for an untrained professional. For example, most people know that they can write-off credit card processing fees, but some do not know if they can deduct gas or a business lunch with a friend.