When it comes to small businesses there are multiple matters that will continually need to be addressed. One of those is paying income taxes to the Internal Revenue Service. The failure to follow the rules regarding the taxes that should be paid could result in an audit being conducted as well as great expense to the business. In this post we will cover tips on how to avoid this outcome.
The first is to pay the quarterly estimated tax payments as required. In most cases the IRS requires that payments be made when more than $1,000 is expected to be owed. This is specifically relevant for those who filed as a self-employed individual, an S corporation, a partner or a sole proprietor. The failure to make those payments when due, could result in a financial penalty.
Another situation in which a small business might run into problems with the IRS is when it misclassifies an employee as an independent contractor. This classification is often appealing since it provides an advantage to the business by not requiring the payment of payroll taxes. In cases where the IRS disagrees with a classification, a business can find that it has to pay those taxes that were missed.
Keeping poor records could lead to problems on multiple fronts including with the IRS. Keeping track of expenses in an organized manner can make it much easier to complete tax returns and back up the information regarding business-related expenses provided in those returns. Speaking of business-related exemptions, taking excessive deductions on a tax return could lead to an audit and even allegations of tax fraud.
Perhaps the most obvious issue that could result in issues with the IRS is the outright failure to file a tax return and pay the taxes owed. The due date for this will vary depending on the structure under which the business is incorporated. Here again the failure to file or make the required payments could result in late penalties.
When a small business is faced with a tax issue it is important to take steps to remedy it. This usually entails working with a lawyer.
Source: NASDAQ, “5 Frequent Small Business Tax Mistakes to Avoid,” Steve Nicastro, Nov. 6, 2014