The sheer number of regulations and the complexity surrounding business taxes can be incredibly overwhelming for owners, particularly small business owners who are new to operating their own company.
Whether by negligence or ignorance, business owners end up paying far too much in tax penalties every year due to mistakes involving their company’s taxes. These costs can be almost entirely avoided by utilizing a professional tax attorney like Morgan Maxwell who can help customize a proper tax plan and make sure you keep your business tax compliant.
Below we’ve detailed seven of the most common business tax mistakes to avoid.
1) Failure to pay/file
This seems simple, but far too many business owners either do not file on time or do not pay the proper amount that they owe when they do file. Both of these issues result in penalties, the most severe of which is for not filing on time resulting in a 5% penalty.
2) Poor Record Keeping
Yes, it can be tedious. Yes, it can be frustrating. But when the IRS comes knocking to conduct an audit you will be grateful that you kept organized and thorough records on all of your business finances. Make the effort to create a coordinated system and make sure you keep everything up to date.
3) Not accounting for small expenses
Many business owners neglect to account for smaller expenses like petty cash payments. Numerous small payments or expenses can add up quickly, which means, in the case of your taxes, you do need to sweat the small stuff and make sure you account for every small expense that should be included.
4) Overdeducting
There are a lot of business expenses you can deduct from your taxes, but you need to make sure you are aware of how much you can deduct and that everything you account for is legally deductible. Many business owners assume they can deduct 100% of all of their business expenses, which is not always the case.
5) Intermingled personal/business finances
This is referred to as “piercing the corporate veil,” when you use your personal accounts and cash to pay business expenses and vice versa. Depending on your corporate entity, you need to be very careful about doing this, if you do it at all. It can create a major headache come tax time and expose you to liabilities that you otherwise would have been personally protected from.
6) Non-IRS tax issues
Your taxes with the IRS are not the only ones you need to be thinking about. There’s state taxes, sales taxes, local taxes, property taxes, excise taxes, self-employment taxes, and more. If you focus on only your IRS tax payments, you could become subject to series penalties from other tax authorities.
Don’t let tax mistakes ruin your business. Call Morgan Maxwell and let us work to ensure your company has the best defenses against tax issues it can possibly have.
Written by E. Morgan Maxwell
Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.
