Keep in mind how you manage your record keeping and taxes filings can make a significant impact on your success as a business owner. Here are some common tax mistakes made by small business owners that are easily avoidable:
1. Poor Choice of Business Structure:
It is always important to start off on the right foot, especially when starting your own business. You will need to decide what form of business it will be such as a sole proprietorship, partnership, limited liability company, or corporation. Lots of people will give you advice on which to choose, but it comes down to the type of business you run, financial situation, and the number of owners.
For example, if your business involves risky activity such as logging trees or trading stocks you will want to form a business entity with limited liability to protect your assets from business claims and debts. So your best choice would be a corporation or a limited liability company.
So be sure to conduct some proper research and ask advice from professionals to be sure you start off with the business structure that meets your needs.
2. Waiting Until the Last Minute
You own and operate a business, so it’s easy to understand that time can slip by, and before you know it, taxes need to be filed and paid. Have you been keeping up with your records?
Well, it is easy to throw your receipts and other documents in a folder until tax file, but it’s not the best use of your time.
Organizing that stack of receipts and information takes longer when you have to do it all at once. Plus, mistakes can be made because you feel rushed and it’s difficult to remember what was spent and where.
3. Know the Difference Between an Employee and Independent Contractor
Employment taxes are time-consuming and costly, and you as an employer might be tempted to take the easy way out. Well, let’s look at the consequences of paying employees “under the table” or paying the people who work for you as independent contractors.
The IRS and other government agencies have very definite rules about who is an employee and independent contractor. If the IRS finds out you have been paying people who work under your control as an independent contractor and should have been classified as employees, you will be fined with substantial penalties and back taxes.
If you are paying employees “under the table,” you are encouraging them to evade income taxes. If the IRS finds out you are at risk of losing your business tax deductions.
If you have any questions about e-filing your IRS Forms with ExpressTaxFilings, we’re available by phone, live chat, and email to help! Our US-based customer support team will be happy to answer any questions that may come up in your e-filing.