Small business owners try as much as possible to stay on the good side of the Internal Revenue Service (IRS), however, any time they owe money to the IRS, the health of the small business takes a hit. To avoid tax debts, a small business can seek the expertise of trusted Nationwide Tax Relief Services or take proper care to avoid errors with their tax filings. Avoiding these errors means that the business owner must be familiar with how and when the tax return is to be filed.
As a business owner, you can better avoid problems with the IRS when you are aware of the common problems that all other small businesses make. Knowing these mistakes will help you to avoid them and keep you on the right side of the IRS.
Below are some of the common mistakes made by small business owners leading to trouble with the IRS.
1. Failing to Work With Experienced Financial Tax Professionals
Table of Contents
As a small business owner, one of the best ways to protect yourself from running into trouble with the IRS is to choose the services of professionals who offer Nationwide Tax Relief Services or financial experts who have a track record of successfully handling tax filings for other businesses. Choosing a professional saves you from the stress of errors in tax filings which may catch the attention of the IRS, thus, leading to a tax audit.
A tax professional understands the dos and don’ts of tax filing and with this knowledge, they are in a better position to help you to ensure that your documents comply with the highest standards of guidelines as set by the IRS and the federal law.
2. Failing to Take Into Account Legitimate Business Deductions
Small businesses who fail to hire financial professionals to handle their tax filings may be exposing themselves to lesser revenues by not knowing what to deduct from the overall tax computation. By hiring a professional, small businesses will enjoy more revenue, as the professional is well trained and vast in ways to identify legitimate expenses that have been incurred by the business for which a deduction is necessary.
Image source: https://www.thebalancesmb.com/
Small business owners may not be updated on the extent of deductions they can make from certain expenses and this may shortchange them. However, expenses like travel expenses (including money spent on mileage, gas, and car repairs), magazine subscriptions for the office, petty cash purchases, food expenses for client’s entertainment, training costs and others, qualify to be deducted from the overall tax.
3. Errors of Classification
Small business owners, especially those that work from home may be able to deduct some other expenses which have gone towards facilitating the business. Some of the expenses qualified to be deducted include internet costs, cost of equipment purchased including cameras, printers, postage stamps and more. As a small business owner, chances are that you may be failing to deduct these and it would amount to the marginalization of your profit.
In some cases, you may also make the mistake of classification, especially when the home-based business begins to lose more money than it makes. In such cases as this, the IRS regards this as a hobby rather than a business, thus, putting no obligation on the owner to pay taxes.
If you are ever unsure whether what you describe as a business is indeed a business or a hobby, reach out to a financial professional to seek clarity on the matter.
4. Filing Inaccurate or Incomplete Records
Most small business owners are unfamiliar with the best practices of tax filing and this may push them into making certain mistakes that may cost them a lot in the near future. With most small business owners failing to keep their business records in order, it is possible that such a business may fail to file the correct information on their tax records or others may just supply incomplete information in their records. Doing this could amount to underreporting of income, an act which is frowned upon by the IRS.
It is, however, possible for small business owners to protect themselves against this by making sure that their accounts are properly balanced to reflect how much is made and how much is spent, what is spent on what or who. It may be required that small businesses hire staff that will specifically see to it that their accounts are balanced at all times.
5. Failing to Report Accurate Income
Accurate income reporting ensures that the IRS is kept up to date with your business’ welfare and how much it is entitled to in tax filing. However, most small businesses are tempted to underreport their income because a lower-income translates to lower taxes. Doing this purposefully may, however, put you on the wrong side of the law and with the IRS and this puts your business in danger.
Should the IRS launch an audit into your business, they may be able to uncover this act and this may lead to huge fines, prison time or other tough punishments.
Feature Image source: SHUTTERSTOCK