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.
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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.
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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.
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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.
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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).
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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.
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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.
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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.
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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%.
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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.
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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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