Share with your friends

A Procrastinator’s Guide to Tax Day Survival - ThinkstockPhotos-510851931-d-c.jpg

A procrastinator’s guide to tax day survival

Benjamin Franklin may have said that nothing in this world is as certain as death and taxes, but this doesn’t mean that your taxes have to be the death of you (or your business). In less than two weeks (Tuesday, April 15), your tax troubles could be over — or they could be only beginning if you haven’t planned properly.

Fret not — there is still time. If you are finding yourself scrambling to get your taxes done on time, take a moment to stop, breathe, and think about what you are doing. The most costly mistakes are most often made when things are rushed, and tax mistakes are the kind that can quite literally cost you.

To avoid this, here are seven common small business tax mistakes you should try to avoid while preparing your taxes:

1. Poor record keeping

As a small business owner, you probably know by now that success lies in the details. But most small businesses who fail to comply with their tax reporting requirements typically are bad record keepers. This just isn’t going to fly when the IRS comes knockin’. Establish a process of keeping all records relating to business expenses or employee issues. If you find paper files to be irksome, store files digitally — keeping them organized is key. When tax time comes around, you will be glad you did. In addition to supporting your tax filings and protecting your business from legal liability, good records can help you identify deductions and provide other important insights.

2. Getting called out for dubious deductions

The IRS offers a pretty broad allowance for what constitutes business expenses, but small business owners tend to be overly aggressive. While just about any “ordinary, necessary and reasonable” expense that helps you earn business income is deductible, in the event that you are audited you need to be able to explain the who, what, where and, most importantly, why. Five deductions commonly targeted by the IRS are: entertainment, car and transportation, business gifts, home office, and equipment and supplies.

3. Missed tax credits

There are several tax credits afforded to small businesses for a variety of reasons. For example, the Small Business Healthcare Tax Credit could save you $7,500 if you pay $50,000 a year toward workers’ health premiums and qualify for a 15 percent credit. Maybe you hired a veteran or disabled worker last year? Besides other employee credits you can claim under the Work Opportunity Tax Credit (WOTC), the Returning Heroes Tax Credit offers a maximum credit of $5,600 per veteran for businesses that hire unemployed veterans before January 1, 2014. The Wounded Warriors Tax Credit offers a maximum credit of $9,600 per veteran to businesses that hire veterans with service-connected disabilities. If you hired a disabled worker, the IRS offers guidance on credits here. Don’t worry if you forgot to claim tax credits in the past — you can claim them going back several years — but it’s best to consult your accountant or tax attorney first.

4. Employee/contractor confusion

In Rocket Lawyer’s most recent Semi-Annual Small Business Index, we found that more than 35 percent of small businesses would be hiring in the first half of 2014. Of those to be hired, the ratio of employers to contractors was 50:50. Deciding between hiring employees or contractors is an important decision that defines not just working relationships, but also taxation. An employee is defined as anyone who performs services for you where you control what will be done and how it will be done. Independent contractors also perform services for you, but you do not control the service delivery, only the end result. If the IRS believes that you have misclassified an employee as an independent contractor in an attempt to evade federal taxes, they can come down on your hard.

5. Payroll tax problems

Payroll can be a major pain for employers, but it is one of the things that can harm you most if done improperly. In order to pay federal employment taxes, you need to: withhold income, Social Security, and Medicare taxes from each employee’s wages; pay the matching amount of Social Security and Medicare taxes; and pay federal unemployment tax for each employee. You also need to file W-2 and possibly 1099 tax forms. There is a stiff penalty for not paying your payroll taxes — 100 percent of the amount of the taxes that are owed, in addition to the taxes owed and interest thereon.

6. Choosing the wrong corporate structure

When it comes to choosing the most appropriate structure for your business, you have several options. You could incorporate as a sole proprietorship, a partnership, a C corporation, an S corporation, an LLC, or a non-profit. Each corporate structure has different implications for legal liability, expenses and procedures, fundraising, and taxation. But choose wisely — with the wrong structure, you could be burdened by unnecessary costs and commitments.

7. Failing to respond to IRS notices

Rest assured, the IRS will call you out if you make one too many mistakes, but don’t freak out. The IRS sends out several different types of notices to taxpayers, and most are nonthreatening if handled correctly. A majority of the notices sent to taxpayers only lets them know of an error or inconsistency in tax filings. If you receive an IRS notice, remain calm, figure out what the notice is saying, and call the IRS if you have questions. After that, gather the appropriate documentation, follow the notice’s instructions, and respond. If you need assistance, find a tax lawyer as soon as possible. Don’t forget that the IRS isn’t perfect — they may make mistakes. If you believe the IRS has sent you a notice that is incorrect, it could be worth hiring an attorney to help you walk through the process to make sure everything is in order. Another option is to pay a visit to your local IRS office, where they may be able to help you clear up any issues.

Tax Day need not be dreaded like the Apocalypse — if you plan ahead. The same habits that will help to keep you in good standing with the IRS also will help you to run a better business. Keep this in mind moving into 2014, and next year’s tax season will be a breeze.

Comments are closed.