Almost 45% of small businesses cite taxes as a negative for their company, and that lower payments would help them succeed. Such outgoings burden many companies, and handling them well can mean the difference between success and failure. So, have you made sure you watch out for some of the most common errors companies make when filing (or not)?
Below, you can find some of the most common and pressing issues when it comes to submitting taxes and how you can avoid them. At the end of the article, you will find advice on how to also prevent yourself from falling victim to them in the future.
Avoiding Any Tax Planning
An important part of business tax prep is knowing the outgoings you might need to endure before the year is up. Such a burden can hit hard if you do not prepare for it, and can create cash flow issues in later seasons.
By planning, you can discover areas where you can use tax credits, grants, deductions, or other opportunities to reduce taxation. You can also ensure you set aside enough money to pay taxes up-front and not need to enter a period of tax resolution.
Misunderstanding Tax Obligations
Not having a good understanding of the types of obligations you need to fulfill and the regulations you might need to follow can lead to penalties. This is because you will not know you should take specific steps, which will lead to you not complying with them due to a lack of knowledge alone. You are likely to file your taxes illegally, resulting in potential audits or tax disputes with the authorities.
Ensure that you research what your obligations are and how you can meet them. It is also imperative you remain up-to-date on any changes that might occur in laws and regulations after you start filing.
If you do not believe you have the ability or time to do this, you may need to engage with a tax service that can help you navigate these issues.
Shooting Past Tax Deadlines
You must make sure you set aside enough time to file any tax documents, long in advance of their deadline. You should also ensure you make any tax payments promptly. Failing to do either of these can lead to problems such as legal penalties or other losses.
If you file your taxes late, you are also likely to incur delays in any refunds you would otherwise have an entitlement to. This can lead to a lower cash flow and a reduction in your ability to invest in your business.
Over time, if you continue to miss these deadlines, it can have long-lasting implications. If you ever end up audited, for example, a tax authority may take these late payments into account and not trust your business.
Poor Bookkeeping
Bad accounting, even with small business taxes, can often lead to discrepancies in your financial records. If this occurs, you are likely to file your taxes with incorrect information.
By not organizing these well enough, it can often also make it harder to track things like deductibles, or claim tax credits when you need to. Instead, try to make sure you keep all your records in good condition to give you the best tools when you need to talk about your financial situation.
This can also help you if you end up in a tax audit or a dispute with tax authorities. Having clear records allows you to present them with detailed information on your incomings and outgoings. This will allow you to discuss your situation with them from a position of knowledge.
By having better records, you can also plan for the future with the best information available. Thus, you are likely to make better business decisions and have an improved chance of success.
Not Understanding Tax Withholding
Make sure that you understand what tax withholding is and how it affects your payroll. Keep tabs on the IRS’ guidelines on withholding and staying up-to-date on how much you should be taxing your employees. This way, you can ensure you meet both your and your employees’ tax obligations, preventing problems for all involved.
Forgetting Tax Write-Offs and Deductions
You should keep good records on any write-offs you decide to claim on your taxes, as well as any deductions you can prove. If you do not do this, you will miss out on claiming back for business expenses such as equipment, travel, supplies, and other reductions. Make sure to keep all this information in a digital format, as well as physical where possible, to help you back up the data in case of an accident.
Mixing Personal and Business Expenses
Try to avoid mixing up your personal and business expenses where possible, as this can lead to you missing write-offs and deductions. If there is any overlap in the types of things you buy for business and personal reasons, it may also be harder to prove its use to tax authorities.
Responding Poorly to Audits
If you face an audit, respond as soon as you can with as much detail as they need to prevent escalation. If you do not, you may face more assessments, penalties, and a deeper dive into your financials.
Try to cooperate as much as you can, despite the difficulty of running your business at the same time. Having well-documented financials can help you here, as can professional assistance.
Not Engaging With Business Tax Services
Accounting services are often able to look into your accounts and offer advice when it comes to your financial records and tax filing. They may even have the ability to take the whole process off your hands, leaving you free to run your business.
Such services also have their finger on the pulse of the tax world. As such, they can help you stay informed about changes to laws and regulations, helping you side-step problems and possibly even pay less.
Avoid Issues With Business Taxes
All the above issues might be a common sight to see when it comes to business taxes, but they are in no way the only problems. Taxes are a complex process, and you might need help handling them as you move forward in the business world.
We can work with you to ensure you avoid many of the most common pitfalls when it comes to taxes. From tax planning to filing tax documents, we can work with you from the start of the process to the end. So, learn more about what we can offer in Charlotte, NC, today.