English
Español
Taxes are a necessary part of business life and while they can seem mundane, one mistake can lead to a lot of headaches later down the road. Here are 6 common tax mistakes that are made by businesses and how to avoid them.
1) Not Keeping Records or Receipts
IRS regulations require that employers keep payroll records such as timesheets, employee W-2 records, receipts for expenses, and other documents and to have them available for IRS inspection. Similarly, receipts for business expenses should be retained for no less than 6 years in case you are called upon to justify those expenses if they are being deducted.
2) Classifying Workers Incorrectly
It can be tempting to classify workers as independent contractors for tax purposes to avoid payroll taxes and benefits. However, unless the worker is legitimately a contractor, you cannot classify them as such. And the determination of whether a worker is a contractor is not dependent upon the whim of the employer, but on the facts surrounding the nature of the employment. This is an area that is fraught with potential danger so it is imperative to have a good handle on worker classifications at all times.
3) Deducting Inappropriate Items
The IRS is fairly savvy when it comes to knowing what is and is not a legitimate deduction for your business. It also requires that you have documents and receipts to back up your claimed deductions. So, think carefully when you consider trying to deduct home office expenses, vehicle expenses, or entertainment and travel related expenses. These are the top categories of expenses that are deducted and not surprisingly, the most misunderstood.
4) Not Deducting Legitimate Items
There are legitimate deductions to be had for businesses, such as costs of continuing education related to your business, costs of up to $5,000 for the first year of getting your business started (and bonus for the next 15 years, too), interest paid on credit cards if they were used for business, and the costs of unpaid items in inventory.
5) Business Expense Miscategorization
Related to inappropriate deductions, another common mistake is placing business expenses in the wrong categories. This skews and causes incorrect reporting, which can lead to potentially paying incorrect taxes. Besides the basic wisdom that personal expenses should not be placed in business expenses and vice versa, try also not to have too many categories or exotic categories, either. Keep to the usual categories and make sure that the expenses that are placed in them really belong there.
6) Taking the DIY Approach
Even the smartest software is incapable of working correctly if it is not used the right way. So, consider it a worthwhile investment to secure the assistance several times a year from a tax professional. This person can help you avoid these mistakes in the short run which will then save you both time and money in the long run.
The attorneys at Weisberg Kainen Mark have the tax experience and know-how to assist you in avoiding these mistakes or in minimizing their impact on your business. Consider calling us today for a consultation on your business tax issue.
Weisberg Kainen Mark, PL
Latest posts by Weisberg Kainen Mark, PL (see all)
- The Tax Implications of Securities Fraud - April 15, 2024
