Benjamin Franklin was stated as saying that nothing is certain, except death and taxes.
Yet, paying the government the amount levied on your income isn’t a simple process. The law is complicated, and most small business owners don’t fully comprehend the legislation.
“Individuals, businesses of all sizes, organizations, and even charities will face tax issues from time to time.
Here are some oversights as a guide. You should also seek advice from a professional.
Let’s get started.
Tax Issues You Should Avoid
Failure to Correctly Report Income
You must report all trading income to the IRS. However, you should only submit your net revenue, after deducting your cost of sale.
Overlapping Business With Private Finances
Keep your company and individual accounts separate. You don’t want to miss out on a deductible or inadvertently report personal income.
Late Submission of Return
Take note of the filing deadline. Ask for an extension if you can’t make it on time. You don’t have to provide a reason but be sure to submit your return by the extended date.
Not Keeping Proper Records
To support your claim for deductions, you’ll need to provide evidence of the transactions.
For instance, if you use your car for business, you’ll need to maintain specific records. If not, the IRS might disallow your claim.
Underpayment of Estimated Taxes
Note that you have to make an advance tax payment before you file your return. The IRS has guidelines on how to compute this approximate figure.
You’ll incur a penalty if you fail to do so.
Misinterpreting the Law
Please don’t assume anything when it comes to your taxes. There may be restrictions you’re not aware of. In the case of meals with clients, only 50% of the expense is allowed as a deduction.
Another misconception to dismiss is that you’re not allowed to take the home office deduction. If you work from your house, know that you’re allowed to get a tax break from it.
Unclaimed Start-Up Costs
You may claim expenses incurred before you commence operations for as much as $5,000. You can pay the excess over 15 years.
Filing an Incomplete Return
To be eligible for certain benefits, you’ll need to include the relevant forms and supporting documents with your tax submission.
Not Grasping That Federal and State Tax Laws Are Different
It’s essential to understand that every state has legislation that’s separate from the federal government. You’ll need to know which deductions are treated differently or disallowed.
Non-Disclosure of Important Information to Your CPA
The IRS has the discretion to disallow deductions and reassess your tax liability. It can also impose a penalty for accuracy reasons.
You might have a chance to avoid this fine if you can prove that you relied on your CPA who has all the relevant information.
How to Avoid Costly Tax Mistakes
First, is to acknowledge that tax laws are complex. The above list of pitfalls that most small business owners face should only serve as a guide. You should always seek professional advice, preferably before running your business. Hiring a good CPA or legal advisor can preempt future problems that will save you a lot of money and stress.