As a small business owner, your taxes are just as important as the products and services you provide. One costly mistake is enough to wreak financial havoc on your business. Knowing how to avoid mistakes is key. Here are just some of the common tax mistakes small businesses make.
Particularly for new business owners, calculating your tax load in order to pay your estimated taxes can be tricky. However, paying too little will result in a tax penalty. While you don't have to be spot on, you need to be quite precise with your estimate. The IRS offers two options, you can either pay the equivalent of your previous year's liability or pay at least 90 percent of your projected liability if it will be greater than the previous year.
Late payments on an installment agreement with the IRS can come with serious penalty. If your short on cash flow, you might think you're doing yourself a favor by waiting to pay, but in reality you're only increasing the amount you will have to pay later on down the line. Each month you are late, the IRS adds .05% interest to the entire tax bill, not just the amount currently due.
A small business can have employees or independent contractors. It's your responsibility to classify each person correctly. Although it's easier and more cost effective to classify an employee as an independent contractor, it's not worth it in the long run. When the individual files their personal income taxes and you haven't provided supporting tax documentation for their income on your end, you will be left with a bill. Make sure you are classifying, tracking and reporting payroll tax information correctly.
While an occasional mistake, such as transposing numbers, is sometimes unavoidable, unreasonable carelessness is not. Negligent reporting, such as failing to report your full income can come with repercussions. Depending on the circumstances, this can translate into a penalty of up to 20% of the underpayment. In addition to incorrect income reporting, should you be selected for an audit and you are unable to provide documentation for any deduction you claimed, you could also incur this penalty.
You can find confidence in the fact that a tax attorney can offer guidance to help you avoid these costly and time-consuming mistakes. In the event you have fallen prey to one of these mishaps, an attorney like Delia Law will also be able to help you navigate through this situation.Share