From keeping tabs on your inventory to marketing, managing your workforce and ensuring compliance with applicable laws, running a business comes with tons of responsibilities. It is not surprising that most small-business owners do not pay much attention to business taxes.
Tax compliance is an integral aspect of business ownership. And while mistakes happen, tax mistakes can be very costly to your business. Here are common tax mistakes that you need to avoid when operating a business:
Filing the wrong tax forms
Depending on your business’ legal structure, industry and nature of the workforce, you are required to file different tax forms with the IRS as well as the local and state tax departments. Some taxes (like sales tax, estimated income tax as well as payroll taxes) have to be filed quarterly while others have to be filed annually.
Still, some forms like the 1099 and W-2 forms have to be made available to employees so they can file their own taxes. Failing to file the right form at the right time can lead to serious problems.
Underreporting or underestimating your taxes
If you are running a sole proprietorship, you will most likely be required to pay your taxes on a quarterly basis based on your annual tax bill. Of course, the IRS understands that you probably cannot guess the exact figures.
However, the IRS still expects you to make an intelligent guess. Underestimating and, thus, underpaying your taxes can attract a penalty, especially if the IRS is convinced that you were unreasonably careless or negligent while reporting your income. The penalty can be very severe if the IRS believes that you attempted to defraud it. Besides the heavy penalty, you may also face criminal tax fraud charges.
Tax issues can give you sleepless nights and ruin the business you have worked so hard to establish. You may be able to find out how you can safeguard your rights and interests when litigating a business tax case.