As the owner of a small business, it's important to take steps to understand your tax obligation and pay this liability in a timely manner. Otherwise, you may inadvertently compromise the growth and future profitability of your business. Read on to learn more about some of the most common tax mishaps made by small businesses and the steps you can take to avoid them.
It can be tempting for a small business owner to under-report their income to minimize their tax liability. Payments received in cash may be omitted from their income totals, and services provided as part of a barter transaction are often left off the books.
However, it is illegal to misreport your business's income. Not only do you expose your business to costly penalties, but you also put yourself at risk of criminal prosecution. If you're leaving items off the books, it also makes it difficult for you to determine which aspects of your business are bringing in the most profit.
For optimal accuracy and to check that your tax liability is accurate, make sure that you record and report all forms of income.
Sloppy Record Keeping
Sloppy record keeping can cause your business to lose some of its hard-earned money. If you don't promptly record your invoices, receipts, and statements, this makes it difficult for you to accurately report your income and expenses when it's time to do your taxes. You may inadvertently leave money on the table if you under-report your deductions or don't claim a tax credit that you are eligible for.
If one of your tax returns is audited, you need to make sure that you have the appropriate documentation to support your reporting. It's important for your business to develop a system and follow a schedule for filing and recording its financial documents.
Not Calculating or Making Your Quarterly Tax Payments
Some small business owners mistakenly believe that quarterly tax payments are optional and that they can settle their tax liability the next tax year. However, it's required for your business to make regular tax payments towards your estimated tax liability. If you don't know how to calculate your estimated tax payments or aren't sure when you should make them, a tax specialist can give you the info you need to make sure your payments are made on time.
Not making quarterly tax payments means that your business may be subject to fines or interest on your unpaid taxes. It also forces your business to come up with a large sum of cash to settle your tax bill.
For more help, work with a local company like OnPoint Business Tax & Accounting.