Do you know your business’s cash flow takes a hit when you owe IRS money? In such a case, avoiding a tax debt can be really simple like knowing when and how to file the small business tax return.
Also, by knowing what business tax mistakes to avoid, you can prevent having to pay the IRS money than what you legally and rightfully owe every year.
Whether you own a small business or a big one, you need help. Hiring skilled professionals helps you get small business tax tips in 2020 so you don’t need to worry at all.
Neglecting Hiring A Financial Expert
One of the easiest ways to avoid common small business tax filing mistakes is by hiring skilled tax experts. These individuals understand that as an entrepreneur you have very little cash left in your budget for anything other than the basics.
The tax expert can even ensure that your finances are just in order and also help you find ways to save money while bulking up the cash flow.
More importantly, the qualified financial expert professional can advise you on matters such as tax credits, small business tax preparation that you claim on the tax returns.
Now, the money this individual saves can cover the cost of hiring him and just leave some cash on your budget at the same time. So, this is again a win-win situation for you, right?
Missing Out On Legitimate Business Expense Deductions
Another important reason for hiring a tax expert for your small business involves finding and using legitimate expense deductions to which you are actually entitled. The IRS permits small business owners to deduct some expenses on the returns to help reduce their taxable income.
Knowing what these expenses actually are, however, tricky. Even more, failing to claim them when filing your returns can result in paying huge and unnecessary taxes to the IRS every year.
Some of the common business expenses you can deduct when filing returns are:
- Minor cash purchases
- Travel expenses such as car repairs, mileage, and gas
- Training classes
- Food expense such as entertaining clients
You can keep a record of these costs during the year so you can show proof of these when you are filing the taxes.
Falsely Classifying Hobbies As Businesses
One of the other tax mistakes to avoid is not classifying your hobby as a business.
Legitimate home-based business owners can actually deduct expenses such as postage, internet bills, purchase of equipment such as cameras, printers on the returns.
However, when you have a home-based business that constantly losses more money than it makes, the IRS labels it as a hobby and not a business.
As a rule, you can’t deduct hobby expenses on the taxes unless these are lower than the amount of income you make from it. If you are unsure of whether or not your endeavor is a hobby or business, you must check the IRS guidelines on their website.
You can then choose whether or not to deduct the related expenses on the tax return.
Incomplete Or Inaccurate Records
When you don’t keep your business records properly, you only make it more difficult to file and pay your taxes on time every year. Incomplete records often lead to you misplacing important tax documents such as income-earning statements or deduction receipts.
If you hire an expert to help you with small business tax preparation, you are likely to make the person’s job really challenging. However, you can avoid it by organizing the records. Take enough time to organize the business’s books.
If you lack the time or talent, you can hire staff specifically for the purpose. You even have the option of outsourcing the tax services to a recognized firm.
Inappropriate Income Reporting
It may be really tempting to under-report what your small business really made during the tax year. However, purposeful and inaccurate reporting of the income only puts the business at risk of having IRS audits.
In fact, the IRS will sooner or later find out that you manipulated the numbers on your tax return. Now, once they find you, you will definitely be at risk for having criminal and civil penalties levied against you.
You can also avoid penalties by being truthful about your income when filing the tax returns. If you aren’t sure of how to report the income, you must hire a tax expert to file your business’s returns on your behalf.
Failure To Pay Or File On Time
As with filing the personal tax returns, your business’s returns need to be filed on time every year. Further, if you owe anything to the IRS, you must pay in full by the mentioned deadline if you don’t want to pay huge penalties and fines.
Finally, you must keep in mind these small business tax tips 2020 so as to avoid paying fines and penalties to the IRS unnecessarily.