I don't know about you but this tax season seems to be moving at an accelerated pace. However, we don't want you to move too fast that you miscalculate your taxable income, incidentally under report your business income or miss an important tax deadline.
Fontenot & Associates Solutions, LLC has identified five (5) avoidable, but yet common small business tax pitfalls to share with you as we look for ways to help minimize your business expenses. We prefer that you keep any extra dollars earned in your bank account.
1. Making Deduction Mistakes - One of the most common mistakes made by small business owners is, not keeping accurate records of their expenses. While some may see it as a tedious task, Fontenot & Associates Solutions, LLC would like you to see it as taking the initiative to avoid spending countless dollars on penalties to the IRS.
2. Charity Donation Pitfalls - Charity donations should not be your go to deduction when trying to reduce your taxable income. If you donate to charity, you will need to keep an accurate list of the items donated and its value. In addition, obtain a receipt from the location, which should be a reputable one. This will help to avoid a 25 percent penalty.
3. Inaccurate Tax Returns - If you made an error on your tax return that results in you owing more tax, the IRS can charge you a late payment penalty on the amount still owed. This could be a costly mistake for m any small business owners, especially since the penalty is 0.5 percent per month or partial month, to a maximum of 25 percent of the amount owed. A recommended solution to this tax pitfall is to review your business transactions at least quarterly for accuracy.
4. Failing to Making a Payment on Time - While some of these pitfalls may not be intentional, it does not stop the IRS from penalizing you and assessing a 0.5 to 1 percent penalty each month on an unpaid tax bill.
5. Civil Fraud Pitfalls - A huge pitfall a small business owner can make is to underreport income with fraudulent intent. Not reporting all of the income earned on your federal tax return, on purpose, can cost you not only huge penalties but also a charge for criminal tax fraud. The penalties fined can be as much as 75 percent of the amount you failed to report. This pitfall is not one to take lightly and is completely avoidable with the proper business processes in place.
The solution to all of these pitfalls, starts with keeping accurate records. Small business owners may also consider hiring a professional to support them and/or their team.
Remember, you are in business to build and grow. An audit has caused many small businesses to close their doors because of underreported income or high penalties for fraud - this does not have to be your business.
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