6 Major Mistakes People Make In Tax Planning

The previous year has been like no other, not only for big enterprises but for small businesses and individuals all over the world. But among all of that has been going on, businesses still need to keep up with the tax laws and deadlines. It is something you cannot escape. Some businesses prefer to do it by themselves while others hire experts dedicated to accounts and tax planning. If you are someone who is looking for tax preparation in Maryland, it is a good decision because this way you will allow them to make decisions that can impact your business accounts. Small business accounting is slightly different. But it is possible to find a CPA in Columbia who is expertise in small business CPA accounting.

But businesses often make certain mistakes whether they are handling the accounts on their own or they outsource the accounting and tax planning. In this blog, we will take a look at some of the most common mistakes individuals and businesses make in tax planning. 

Most common mistakes people make in tax planning

Deductions & Business Expenses

Whenever your business expenses are exceeding your normal or regular income in the business, you will attract unnecessary and unwanted attention from the IRS. Any business expenses that you ever make in your business need to be considered carefully. When there is a situation like having a home office, then the expenses rules are slightly different. IRS has very strict rules relating to any expenses that you make for your business. Any expenses belonging to Schedule C expenses are fine. Make sure you also follow the depreciation schedule from IRS for vehicles and business equipment. 

Mixing Expenses during tax planning

We are probably repeating ourselves here, but this is a very common mistake that people make. Many businesses mix their personal and business expenses. This will make it very difficult to distinguish are expenses that are tax-deductible. So it is very important that as a business you keep your personal expenses out of your business expenses. 

Alternative Minimum Tax

The alternative minimum tax is a completely different system that you have to deal with. It also has its own set of rules that you need to follow. There are ways of figuring out your tax bill with the alternative minimum tax and then you have to pay the bill whichever is higher. When you go for alternative minimum tax, there are several important deductions that will not be allowed. This also includes the deduction for state and local income taxes, license fees, property tax, and some miscellaneous deductions. 

401K Contributions

When you mention the amount toward’s employer’s 401K contributions, you are not only reducing your taxable income dollar-for-dollar, this income will eventually grow tax-deferred by the time you withdraw it after many years. It is good protection to have. If your employer is willing to match your contribution, it is a really good thing. So if you are not doing 401K contributions, you will be missing out on what you will be receiving from your employer as well. When you will eventually receive a payout in the retirement on your contributions and earnings, they will be considered tax free. 

Failing to Plan

Tax laws and complying with the tax laws is quite tricky and difficult to understand and follow. This the reason why it is important to have a CPA Columbia MD to help you out with it. Finding a good tax accountant Columbia MD is really important for your business as you need to be particular at the time of tax planning for your business. 

Entitled Tax Deductions

If you are making any charitable contributions towards any kind of organization, it is really important that you apply for consideration at the time of tax planning and filing. Sometimes you might feel like these things add no value to your business or have a tax purpose. But when you hire an expert they make you understand why it is important to consider and mention these things to the IRS.

Any out of pocket expenses that you make at the time of working for a charity must be recorded properly and keep a track of them. You can simply add any such expenses to your cash contributions. This might be a bit tricky for you to understand right now. But once you have an expert handling these things, you will not have to worry about it. 

Conclusion

If you are looking for small business accounting services or tax preparation in Maryland, you can easily reach out to a CPA in Columbia offering small business accounting services to small businesses specifically. There are many experts out there who can help you understand these details really well. They will not only help you with tax planning but also at every step of tax filing and business accounting. If you do not have an in-house team already, it is a really good idea to reach out to a small business accounting team to help your business.