Everyone makes mistakes now and then, but some are more costly than others. Often, the biggest mistake is continuing to do things the way you’ve always done them, rather than examining the assumption that your information is accurate.
There are almost 35 million small businesses in the country, each with taxes to file. Getting professional help with these important foundational tasks can set you up for success by ensuring that you are getting maximum deductions and avoiding penalties.
Common Tax Errors to Avoid
It’s nearly impossible for a business owner to stay on top of all of the changing tax laws, regulations, and miscellaneous updates from the IRS. Hiring a professional who can help you stay on top of reporting requirements, prepayments, and day-to-day documentation tasks is just part of the puzzle.
Here are some common tax errors that small businesses should pay attention to:
- Underpaying Estimated Taxes. Not paying the full amount of estimated taxes can cost you in penalties. If you owe $1,000 or more, make sure you prepay quarterly.
- Mingling Personal and Business Expenses. It’s tempting to use one credit card for your day-to-day expenses and business use, but that makes it difficult to keep an accurate accounting of legitimate spending. It’s better to have one dedicated to business use.
- Depositing Employment Taxes. If you have employees, you must collect employment taxes. Make sure you’re following the letter of the law by depositing them in a timely manner to avoid penalties.
- Misclassifying Employees. Employers have less paperwork to do when their employees are classified as 1099 contractors, but the IRS requires the classification to follow the employee’s responsibilities. If employees are working regular hours, receive benefits, or their workdays are similarly dictated by the employer, they are W-2 employees, not contractors.
- Missing Deductions. Tax law changes frequently, at times making new deductions available to businesses like yours. Things like employee retention credits, research and development credits, and equipment purchase deductions can all lower your tax burden.
Common Legal Mistakes Made By Small Businesses
Lots of small businesses begin haphazardly, without laying a strong foundation. If your business grew organically, without following a step-by-step plan, there’s still time to correct errors. Your small business can benefit from recalibrating in these ways:
- Business structure. Is an LLC, S-Corporation, sole proprietorship, or corporation the best for your purposes? A business attorney can lay out your options, with the pros and cons of legal exposure, financial benefits, and tax implications.
- Ignoring Labor Laws. As an employer you are required to perform specific fiduciary and records-keeping tasks related to paying overtime, unemployment, and documenting employment. Neglecting these responsibilities can carry penalties or entangle you in a lawsuit.
- Tax and Payroll. Collecting and handling payroll taxes properly will keep you on the right side of the IRS, as will accurate accounting for sales taxes. Ignoring these requirements can result in major penalties.
- Contracts. You may believe that business can be conducted on a handshake but a legally-binding contract is much more effective. Each business relationship, including with suppliers, employees, leaseholders, and subcontractors, should be memorialized with a contract to protect your business.
- Business Insurance. Insurance is required under many related business contracts, including by the owner of the building you’re leasing, and by your vehicle insurance. Business insurance will help you avoid litigation through general liability and property protection.
Protecting Your Interests Through Planning
It’s understandable if your attention is completely consumed by running your business, but if your record-keeping isn’t accurate and updated, you could be flirting with lawsuits and penalties. Put your trust in the advice of a proven business attorney at Legacy & Life Law Firm LLC.
A ground-up approach to your business plan and organization can streamline your practices and bring you into IRS compliance. Call Legacy & Life for a free consultation.