Did you know that there were over 30 million small businesses in the USA?
The economic conditions of the past few years have given many the opportunity to open the business of their dreams and start out as entrepreneurs.
However, as economic conditions become more difficult, you may be thinking about cutting costs. Many are starting to care for tasks such as book-keeping themselves.
While this might save some money, it can lead to some simple yet costly business tax mistakes. Why not find out what some of these are in our in-depth article.
Table of Contents
1. Work Statuses
One of the simplest mistakes that businesses are making in 2020 is the incorrect classification of workers. The economic situation created by the COVID-19 pandemic has led businesses to reach out to freelance workers and other independent workers more than ever before. However, many are confused regarding how they report them.
If you are working with freelance workers, they are most probably not employees. As such you will not need to maintain the same paperwork for them. On the other hand, if a person is an employee you will need to retain some paperwork regarding their taxes.
This is becoming easier as it is possible to carry out many tax functions such as obtaining the w2 form online.
2. Lack of Punctuality
If you are managing taxes along with running a business, sooner or later you will miss a deadline. This will result in an immediate failure to file a penalty.
This fine will then accrue as long as this remains unfiled. If you find that you have run out of time and are not able to file a tax return before the deadline, you should apply for an extension as soon as possible.
3. Getting Bad Advice
When you are under pressure either because of a lack of time or finances, it can be very easy to accept bad advice. If a person claims to be a financial advisor but suggests that you can hide income or claim more reductions that seem reasonable, then this is likely too good to be true.
4. Incorrect Reporting
The IRS will look to reconcile the information on each 1099 form with taxpayers’ returns. If there is any discrepancy between these two forms, even with good intentions it will be flagged and possibly give rise to an investigation.
5. Poor Record Keeping
When preparing your returns, ensure that you retain all the paperwork that backs up your claims for reductions. This is so that you are aware of how much you can write off, but also so that you can prove that it was legitimate at a later date.
The Biggest Business Tax Mistakes to Avoid and How
If you are in business, you may well be having to learn payroll and taxation rules as you go along. While this is a great learning opportunity, it can also lead to serious issues that can take a long time to resolve and affect your business’s tax burden. Avoid these simple business tax mistakes by following the principles outlined above.
If you are interested in learning more about tax and business subjects, you may want to cast an eye on our blog pages. We research the most interesting subjects that affect you and share them each week.