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TOP 10 SMALL BUSINESS TAX MISTAKES

 

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Everyone makes tax mistakes…even the IRS.  However, when a small business make those mistakes it can be costly.  The result could be smaler refunds, penalties, fees, audits and at worse jail time.  Use this list of the top 10 common mistakes made by small businesses and Avoid making those mistakes when it comes to filing the business taxes.

 

1.  Failure to Report All Income:

 

Some small businesses forget to report all their incomes.  Not a good idea.  You should report all income when you file your small busniess taxes.  If you don’t report it you’re setting your busniess up for an audit.  Some income, such as 1099s are reported to the IRS separately by the entity you received such income from.  Hence if the IRS don’t see it on your tax returns it raises a red flag.

 

2.  Failure to File the Proper Forms:

 

Failure to file the proper forms will not get you the tax returns you’re entitled to.  There are specific form requirements depending on the type of entity you’re filing as.  The IRS website lists the appropriate small business forms that you should be using.  Your professional tax preparation service should also know these forms.  Online tax filing software services such as Quickbooks and Turbo Tax also lets you file the proper forms.

 

3.  Not Claiming All Eligible Deductions:

 

Many small businesses don’t get the deductions they’re entitled to because they’re not aware of what they’re entitled to deduct.  To properly claim your deductions you have to know what you’re entitled to.  Some of the things that a small business is entitled to deduct includes cost of goods sold, capital expenses, business expenses, business use of home, business use of car and other miscellaneous expenses.  The IRS website provides more details about the deductions you’re entitled to as a small business.

 

4.  Not Keeping Good Records:

 

If you don’t have a record of your sales and expenses you can’t take advantage of all of the deductions you’re entitled and you can’t accurately file your tax returns.  Keep good record of all business documents (sales records and expense receipts). 

 

5.  Forgetting to Make Estimated Tax Payments:

 

Some Small businesses often forget that they have an obligation to pay estimated taxes throughout the year.  Income earned from self-employment, interest, dividends and gains from the sale of assets are subjected to quarterly estimated tax payments.  The IRS website stipulates who must pay and how to pay these taxes.

 

6.  Not Claiming Home Office Deduction:

 

Many entrepreneurs operate their small businesses out of their homes.  However, they forget that the home office from which they operate can be claimed as a deduction.  The IRS webiste provides more details about the home office deduction.

 

7.  Misclassifying Employees As Independent Contractors:

 

You can’t classify employees as independent contractors in or der to get a better tax return.  The IRS have strict rules on who qualifies as an employee or contractor.  This is a common mistake made by small businesses.  Follow the IRS guidelines and avoid the penalties that come with this common mistake.

 

8.  Not Filing on Time:

 

Many small businesses fail to file their tax return on time for a variety of reasons.  None of those reasons will stop the IRS from imposing penalties on your business.  Depending on the type of organization you will file quarterly or annually.  For S-Corporation the deadline is March 15.  For Sole Proprietorship the deadlien is April 15.  Failure to file on time will result in fines and penalties that can go as high as 6%.

 

9.  Using Bad Tax Preparation Service:

 

This is a common mistake made by small businesses.  Unfortunately, it is usually after the damage has been done that the entrepreneur discovers the problem.  Be weary of tax preparation services that guarantee you a certain return.  This usually comes with the attempt to get you to agree to deductions that you’re not entitled to or not accurately reporting your taxes.  These steps are sooner or later uncovered by the IRS and penalties are imposed on the business.  Know what deductions you’re entitled and accurately report your income and expenses.  You are still responsible for your taxes, even when you use a professional tax filing service.

 

10. Forgetting to Deduct Sales Tax:

 

Many small businesses report their sales amount with deducting the sales tax.  Not deducting the sales tax results in a higher sales amount being reported thereby increasing the amount of taxes due.  Sales taxes should always be deducted from the sales amount before reporting it.

 

 

 

 

 

 

 

 

 

 

 

 

                                                    

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