It’s easy to make a mistake, but saying your sorry is rarely enough to satisfy the IRS. Small businesses can innocently make tax mistakes that wind up racking up steep penalties, able to bruise or even bust their much-worked-for bottom line. Want to avoid the most common oopsies? Here’s how.
Report Income AccuratelyREAD MORE: CDC Advisers Vote To Recommend Use Of Pfizer's Covid-19 Vaccine In 12-15-Year-Olds
If business is booming it is cause for celebration, but make sure you invite the IRS to the party. Underreporting business income can wind up costing you an accuracy-related penalty of 20 percent or more. Plus it can put you in line for annual audits, even if the IRS determines your mistake was caused by carelessness. If there is enough reason for the IRS to decide you intentionally and fraudulently underreported business income, your penalties may skyrocket to around 75 percent, and may earn you a criminal tax fraud charge.
Don’t Mix Business with Pleasure
Nothing will trigger an audit faster than combining personal expenses with legitimate business receipts. Before you attempt to deduct items that you think might, maybe, possibly, be considered business expenses, check with your accountant. You may feel strongly that those weekly pedicures or a closet full of power suits are absolute necessities for your business to run smoothly, but It’s possible the IRS will not agree with you.
Know What You Can Deduct
Conversely, there are items you are legitimately entitled to deduct that you may not know about, such as the home office tax deduction, educational classes related to your business, books and periodicals, or professional dues. Discuss all work-related expenses with a tax professional to determine what you may not be claiming that you can benefit from.READ MORE: Baltimore Police Release Video Of Two People Of Interest In Efraim Gordon's Murder
Keep Neat Receipts
Maintaining good records is vital to your business’s overall growth, not only for the insights they provide but also, as readily accessible proof of your expenditures. Keep and categorize receipts for every expense you incur neatly in one place, so you can deduct everything you are entitled to come tax time. The receipt you find stuffed into a drawer on April 16 can wind up costing your business.
Stay Ahead of Sales Tax
Every small business owner knows the stress of being cash-strapped. But using money collected as sales tax to float your boat during hard times can wind up costing you more if you don’t file it on schedule. Sales tax is not a government loan, nor should it be treated that way. To stay ahead of the game, deposit sales tax in its own account and remit it on time to avoid penalties, interest or even criminal charges.
Corey Whelan is a freelance writer in New York. Her work can be found at Examiner.com.MORE NEWS: Baltimore City Will Open Pools For The 2021 Swim Season On Memorial Day Weekend