Posted on: 8 February 2023
It's no secret that taxes can be complicated for small business owners. Many entrepreneurs struggle to understand the myriad of rules, regulations, and forms associated with filing their taxes.
While it is important to have a basic understanding of tax law and the most common pitfalls, specialized services are also available to ensure that you do not fall into any of these common traps. Take a look at three of the most common tax problems small business owners face.
Not Keeping Accurate Records
The IRS requires all businesses, regardless of size or type, to keep accurate records of income and expenses. This means tracking every dollar spent to prepare an accurate tax return. This includes not only money you receive but also things like depreciation on assets and charitable donations.
Accurate records are essential for filing your taxes on time and avoiding interest or penalties due to inaccurate reporting. If you don't have the time or expertise to keep track of your finances, outsourcing this task is often a wise decision.
Failing to Pay Estimated Taxes
If you're self-employed or run a small business, one of the most overlooked tax issues is failing to pay estimated taxes throughout the year. Maybe you miscalculated your estimated quarterly tax payment or simply forgot to make the payment.
Regardless, failing to pay estimated taxes can lead to costly penalties, interest, and even an audit. To avoid this trap, make sure to calculate your estimated quarterly tax payments in advance and make them on time. This will help you avoid getting hit with an unexpectedly large tax bill at once — or worse, an audit from the IRS!
Misclassifying Employees/Independent Contractors
Many new business owners struggle with properly classifying employees versus independent contractors when it comes to hiring help for their operations.
Although both types of workers are generally hired for specific tasks or projects, there are major differences between them when it comes to how they are classified for tax purposes — so make sure you do your homework before hiring anyone.
Independent contractors are not subject to many of the same tax withholding and other requirements as employees, so it is important to be sure you have correctly classified any workers you hire.
Tax time can be stressful if you're not prepared or knowledgeable about potential pitfalls associated with owning a small business — but it doesn't have to be. Contact an agency or do some research online about tax planning to learn more.Share