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3 Common Mistakes Business Owners Make at Tax Time

3 Common Mistakes Business Owners Make at Tax Time

The prospect of filing tax returns can be as anxiety-inducing for small businesses as exams are for students. The stakes are high, small errors can have major consequences, and thorough preparation is the key to success. You can reduce your stress this reporting season by steering clear of some of the more common mistakes.

Foregoing a Tax Specialist

By being organized ahead of time, you can save yourself a lot of worry. If you have any concerns about getting your documents in order, hiring a tax professional could significantly ease your burden. Not using an appropriately qualified accountant is a decision you may come to regret. The money you think you’ll save by foregoing a tax accountant will ultimately seem trivial if an oversight raises the suspicions of the Internal Revenue Service (IRS).

Even business tax computer programs can get it wrong. Your business has individual, specific characteristics that may not be intuited by software. An accountant will help you ensure you don’t miss out on applicable claims or deductions and that you report your earnings correctly. It is advisable to select a tax professional who specializes in your industry. Ask for a referral from a trusted colleague if you’re unsure about who to consult.

The important thing to consider is that if you submit a tax return misrepresenting your company’s earnings or wrongly claiming personal expenses as business-related, you could face serious penalties and spiraling interest fees. Having an accountant on your team could substantially decrease your risks.

Failing to Be Informed

Don’t be frightened into complacency. Research your legal financial responsibilities on your own or seek advice from an accountant. While the Internal Revenue Service (IRS) does take punitive measures against transgressors, it recognizes a difference between unintentional and willful tax evasion. Pleading ignorance is not generally a successful defense tactic. But the IRS is known to look more kindly on inadvertent errors. Choosing not to declare an offshore account or conducting large transactions in cash, however, might attract the wrong type of attention.

Letting Pride Get in the Way

If you’re struggling with a large tax debt, assistance is available. You might be too proud to ask for help at first but once you do, it could save your business. The IRS Fresh Start Tax Relief Program aims to lighten the load on citizens and small businesses experiencing economic hardship.

The initiative offers temporary tax relief to help reduce or pay-down your debt. For example, you may be eligible for a payment extension or to have penalties waived. The program does this by negotiating installment agreements or offers in compromise, which reduce or dissolve the amount owed.

Paying your tax bill on time and in full can present a challenge, but not doing so could cost you a great deal of money and even jail time. By taking care to avoid the mistakes that others have made in the past, you can safeguard your business and limit your stress when tax season next arrives.

Image by Flickr via Witches Falls Cotages

Published by Sandy

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