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6 Popular Business Tax Myths Debunked

01st September 2010
By Roni Deutch in Taxes
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Working for yourself, while incredibly rewarding, can be very stressful. Between estimated tax payments, accountants, and tax preparers, it is hard to keep a clear head. To make matters worse, there are dozens of business tax myths, which make tax planning even harder than it needs to be.

1. My accountant is liable for any mistakes on my return

Although you may hire a professional to prepare your tax returns, you are still responsible for filing a correct return with the IRS. Even though an accountant or tax preparer may complete and file your return, they will not be held liable for any mistakes, you will be. To avoid any problems, you should at least have a basic understanding of business tax laws, and always review your return before you sign it.

2. Itemizing is only for the rich

Unfortunately, many taxpayers (both those that are self-employed and those who work for an employer) assume that only wealthy people should bother itemizing their deductions. The truth is that filing an itemized return can benefit all types of taxpayers, at many different income levels. Itemizing is especially helpful for self-employed taxpayers, as there are dozens of business-related deductions you can qualify for. If you are unsure about itemizing, then you can prepare one return itemized and one return using the standard deduction, and compare the results.

3. I know I saved because I prepared my own return

Although preparing your own return will save you from having to pay your accountant or tax professional, you might be putting yourself at risk. Tax laws are always changing, which can make it hard to keep up with new credits, deductions, and qualification rules. A tax professional spends their career studying tax law changes. Therefore, unless you are confident about your tax knowledge, you might want to consider seeking help from a professional.

4. Only big business needs to collect sales taxes

It is unfortunate that any business owners believe this myth. Studies show that a number of business owners have used this excuse in tax evasion cases. The exact amount of sales tax you will need to collect will depend on the state you live in, not on the size of the business you operate. If you unsure about your sales tax obligations, contact your local tax authority or a qualified tax professional.

5. I can write off all of my business equipment expenses

The IRS allows business owners to write off a certain amount of qualifying business expenses, but there are specific rules and restrictions that apply. You cannot deduct expenses before your doors are open, and you may be able to deduct more in your first year of business. There are also restrictions on business related meals and entertainment. For more information on qualifying business expenses you should check the IRS website or speak with a local tax professional.

6. As long as I do business in a room in my home I can deduct it as a home office

The home office deduction is one of the most misunderstood business deductions out there. Many taxpayers think that just because they have an office at home it allows them to take the home office deduction. This could not be further from the truth. Among the many qualifying factors, your home office must be the principal place of business, and must be used only for your business. That means, it can't be your guest bedroom, or the kids' playroom.

The Tax Lady Roni Deutch and her law firm Roni Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced tax lawyers who can fight IRS tax liens on your behalf.
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