Small business common tax mistake to avoid
The following are some of the mistakes which you should avoid as an entrepreneur
- Dealing with independent contractors
Given that payroll taxes tend to add up very quickly, most entrepreneurs carry out this so as to avoid them. This is risky as one is likely to be subjected to penalties and fines when discovered. Some do this by going for independent contractors when it the real case they are their wage earning employees. When you hire a lot of them, it acts as a red flag to the IRS and you may end up being audited and the contractors being subjected to unnecessary interviews.
- Payroll taxes
Business owners need to understand the working of payroll taxes and how staying compliant with the IRS regulations is done. As an employer you are taking taxes from paychecks of your employees and as a result you need to pay them to the relevant tax departments and the IRS.
- Calculation mistakes
A lot of problems can be caused by a simple miscalculation though you might have avoided the other mistakes. When you are calculating your annually tax return and tax payments, you have to be very accurate. The numbers need to be neatly written and typed on all forms to avoid such mistakes which may lead to unwanted penalties.
- Throwing out receipts
All receipts showing all business expenses should be well taken care of. Throwing them away can be a very big mistake. Though taxpayers who earn their wages regularly can afford to throw away their receipts, this is not the case for business owners. They assist in verifying the purchases which are to be deducted from the taxable income.
- Improper banking and budgeting
Personal and business finances should be kept separately. Avoid mixing your personal and business finances, expenses bank accounts. The IRS has a mandate of monitoring your bank accounts and when necessary they may request both the personal and business accounts to be audited when they are suspicious on your dealings.