Everyone makes mistakes, but when you run a small business, and those mistakes involve your taxes, it can set you up for a lot of trouble and frustration. Here are some of the top tax problems a small business owner faces and what you can do to remedy them.
Proper Income Tax Forms and Payments
The IRS requires you to file various forms depending on your business and whether you have employees. You may have to send similar paperwork to your state tax department as well.
Payroll software and accounting programs allow you to set reminders to get the correct forms and payments to the appropriate offices. Your accountant can also set up reminders and organize a calendar for you to know what is due when and where it needs to go.
The Amount of Taxes You Owe
Whether you are filing as a sole proprietor or self-employed, the amount of taxes you owe may initially be based on quarterly estimates. You are expected to estimate the taxes you would owe for each quarter and submit them.
You want to get as close as you can to the accurate number because underestimating or underpaying your quarterly taxes could result in a 20% penalty. If the IRS thinks you were trying to defraud them, it could find you even more, as much as 75%, and you might face criminal charges as well for tax fraud.
Triggers for Tax Audits
Tax audits are scary for any small business owner, but the truth is that the likelihood of the IRS auditing your small business taxes is pretty low. There are some things to watch out for that could trigger tax audits, including:
- Excessive expenses
- Deductions that are disproportionate to your business income
- More independent contractors than employees
Other “red flags” that can trigger tax audits are claiming continuous losses for your business year after year, repeated mistakes and carelessness in calculating your taxes, and large amounts of cash transactions.
Mixing Business and Personal Expenses
When you run your own small business, it can be easy to get your money mixed up. The IRS, however, has stringent rules about the commingling of taxable business income and personal expenses. You can only claim business-related expenses as deductions on your income taxes. It is essential to keep your funds and your business income separate.
Complete and Accurate Tax Records
Keeping your records accurate and organized is vital even if you do not have to file quarterly paperwork or log payments. If you leave everything until tax time, you set yourself up to make errors. A sound bookkeeping system that is well-maintained and up-to-date not only helps you stay on top of your finances but makes it easier to resolve your tax filing and any issues that may arise quickly and easily.
If you’re looking for tax services in Lombard, IL, Accounting & Tax Advisers CPAs is ready to help you. We offer a wide range of accounting, planning, and consulting services and have the experience and knowledge to get you through any tax problems your small business faces.
For more information or a consultation, call us today at (630) 932-9600.