When running a business, there is an influx of information you must wade through. When it comes to taxes, we don’t want you to have to make “educated guesses” on whether the information is a truth or tax myths. You deserve to know you are on the right track from the start!
Let’s bust through our top 10 tax myths!
1. I can write off, both my rental space (in a separate location) and my home office for my business?
Unfortunately, you cannot deduct both. If you have a separate space that you pay rent for, you are more likely to receive a larger deduction for this than if you take a home office deduction.
2. If I own a business, I have to file a separate business return.
This depends on the type of business entity you are…
Sole Proprietor – No, file a Schedule C on your personal return
LLC (sole member)- No, file a Schedule C on your personal return
LLC (multiple members) – Yes, file Form 1065
Partnership – Yes, file Form 1065
S-Corp – Yes, file Form 1120s
3. Side hustles are not taxable.
Side hustles can be either a business or a hobby, regardless both are reportable on a Schedule C and if you have a profit will be taxable.
4. If I do not receive a 1099 then I do not have to report the income.
Absolutely false – you are required to claim all income, regardless if you receive a 1099.
5. I can write off my gym membership and haircuts because they make me look good for my business.
The IRS considers these personal expenses and does not allow you to write them off. In very rare situations you can deduct hair & makeup, but keep in mind, this is rare.
6. If I deduct my home office, this will send a red flag to the IRS.
We do not believe this is a red flag. How on earth could the IRS handle all of the flags that would go up when claiming the home office? Several years ago, the IRS added a simplified method to make it easier to claim.
7. If I file an extension for the business, then I will have additional time to pay my taxes.
We only wish that was true. An extension only gives you additional time to file, penalties and interest will apply if you owe taxes.
8. Business Retirement Plans are for big businesses only.
We believe the #1 reason you should own a business is because you have control over your retirement plan options. If you are the only one working in the company and have a profit – make sure to look into opening a business retirement plan. They can be very easy and inexpensive to set up.
9. I pay taxes on what money I bring home from the business.
You pay taxes on what your profit is, regardless if you take it out of the company or not.
10. Buying equipment will mean little to no taxes.
This could be true, but let’s ask you this…..Do you need the equipment? If it does not fit into your long-term plan, then don’t waste your money. You will spend more on the equipment than you will receive in a tax deduction.
Don’t get caught with tax myths guiding your tax preparations. Be sure to know the truth to keep you out of hot water!