Some business write-offs aren’t good for business.
How do you know what tax write-offs are legitimate for your small business? When done right, business write-offs can save you loads of money. But if you make a mistake or write off the wrong expense, you could end up paying more in the long run. We understand tax law can be difficult, so we’re here to help. The following are three dangerous business write-offs you should avoid at all costs.
Bad Debt
It’s typical for businesses to write off a debt they don’t expect to collect from the customer. Many professionals believe a write-off is generally a good idea, and most of the time, it can be. However, there are some instances where writing off bad debt is actually a very bad move.
Having money on hand now is better than having money promised in the future; bankers and financial professionals understand this very well. There is always the chance that what you declare as a write-off could devalue with time. This difference could eventually add up to a great deal of money. On a small scale, the difference may not seem like a large sum. But for larger corporations, this can account for a significant portion of their bottom line.
A repeated history of bad debt deductions is not a good idea either. This practice can expose your business to tax trouble in the future.
Car Loans
Taking a deduction for your vehicle can easily trigger an audit for your small business. This is because the actual vehicle write-off is very limited. Even if you are using your car solely for business purposes, the tax write-offs may not be what you expect. If you have financed a car for your company, you can take only two legal write-offs: interest paid on the car loan and the depreciation of the car. If you lease your vehicle, you cannot write off depreciation at all.
If you are regularly using your car for business, you should talk to a tax professional. There might be smaller or less common tax write-offs available to you that won’t run the risk of triggering an audit.
Home Business
While it is common to work out of your home, this work arrangement can spike your chances of an audit. There are ways to mitigate the odds, however. If you work out of your home or home office, you may be able to claim a home office deduction. Expenses that might fall within the standard home office deduction include your mortgage, utility payments, and a second dedicated telephone line. You are also allowed to write off internet service provider fees as part of the deduction. Using the deduction is a smart, but only when done properly.
Tax code becomes more complicated every year, especially for small businesses. This is why it makes sense to hire a tax professional to assist with your taxes. The professional team at Incompass can help. We serve residents of Northern California and Sacramento. Our experts are here to help answer your questions and start saving you money today.