Top 3 Pitfalls of Not Getting Tax Advice for your Company

The amount of money you may lose if you make a mistake on your taxes is astonishing. Here are some of the most typical tax errors made by small businesses, as well as tips on how to prevent them.

 

Everyone makes errors, but we’re here to help sure they don’t happen to you when it comes to doing your taxes! Consider some of the typical and preventable errors others have made while paying taxes for their small companies and apply them to your situation.

 

Failing to file or provide the necessary forms or payments on time.

 

Depending on the legal structure of your company, the sort of industry you operate in, and whether or not you have workers, you may be needed to submit and mail a variety of different forms to the Internal Revenue Service (IRS) and, in some cases, your state tax agency as well.

 

 

Some taxes, such as payroll taxes, estimated income taxes, and sales taxes, must be reported every quarter. Others must be filed every year, and still others, such as W-2 and 1099 forms, must be provided directly to your employees and other workers who have been paid during the year so that they may file their taxes with the Internal Revenue Service.

 

Most payroll and accounting software may be configured to send you reminders about the paperwork and payments you need to make for your company; many applications also allow you to print and e-file documents. To be safe, you might have your accountant create a yearly calendar for you so that you are aware of what is due and when it is due. Every year, the Internal Revenue Service (IRS) releases a tax calendar that lists the deadlines for corporations and individuals.

 

Underestimating and underreporting the scope of the problem

Self-employed individuals and those who file as a sole proprietor, an S corporation, a partnership, or a limited liability company are most likely obliged to make quarterly tax payments based on their expected tax liability for the year. The government understands that you are unlikely to be able to predict the precise number, but it wants you to get as near as possible. If you fail to do so, you may be subject to a penalty for underestimating and underpaying.

 

If the Internal Revenue Service feels you were negligent or “unreasonably reckless” in reporting your income or considerably underestimated the amount of tax you owe, the IRS may levy a 20 per cent penalty against your earnings or debt. These “mistakes” are more deliberate than ordinary arithmetic blunders, although you should always aim for accuracy and be completely honest in your calculations.

 

The IRS may uncover evidence of an effort to purposefully deceive it, and you will be fined up to 75% of the amount of money you owe and face criminal tax fraud charges.

Expenses for both business and personal use are combined.

It’s easy to get your finances in a tangle, particularly if you’re self-employed or just starting in a company. Still, the Internal Revenue Service has severe restrictions against combining money. Only company-related costs may be deducted from your gross income for tax reasons. The only way to guarantee that this is the case is to keep your personal and business funds completely separate.

 

This implies that you must establish a separate business bank account and use a business credit card when making purchases on behalf of your firm. If you use any of your assets for business purposes, such as your automobile or a home office, it is critical to maintaining meticulous records to justify any tax deductions that you claim. You can’t deduct something that you can’t prove!

Inadequate record-keeping and organisational skills

Accounting should be more than just a once-a-year matter, even for organisations that do not have quarterly reporting duties to comply with. It is almost certain that if you wait until the last minute to do everything, you will lose out on tax deductions simply because you will not have kept track of your expenditures. Not only that, but it may end up costing you extra money in accounting costs to get things back on the way.

 

Make sure you have a system in place that allows you to monitor your revenue and spending continuously, such as QuickBooks. Every month, you should reconcile your cash flow with your bank and credit card accounts to ensure that everything is in order. Several software applications are available to assist with this, including QuickBooks and Peachtree, which are two of the most widely used. Additionally, in addition to helping you prepare your tax return, having an effective accounting system in place can assist you in staying on top of your finances and managing them more effectively.

 

Failing to Take the Appropriate Tax Deductions

When it comes to claiming all of the deductions you are entitled to, the IRS defines these as any costs that are “ordinary and necessary” in operating your company. American Express has compiled a list of resources to help you start. Publication 535 of the Internal Revenue Service provides thorough guidance on what is deductible and how to manage deductions on your taxes.

 

It is possible that you could be subjected to an audit and will face significant fines if you are detected taking deductions for things you shouldn’t. Even permissible deductions might cause problems if they are out of proportion to your income or what other firms in your sector are claiming in a similar situation to yours.

 

If you claim more in costs than you do in revenue over many years, the IRS may consider your effort a hobby rather than a company and invalidate the deductions entirely.

Conclusion

Being organized and being honest are the two most important rules to follow while trying to avoid tax troubles. When you do what you’re meant to do when you’re supposed to do it, it’s difficult to get into trouble, just like in real life. As well as, of course, acting honestly and honestly—with integrity, care, and good intentions