5 Ways Your Small Business Could Incur The Wrath Of The IRS
There isn’t a business owner out there who doesn’t know that by not paying their taxes, they’re going to attract the attention of the IRS. But what about those times when business owners are questioned by the IRS over tax issues they knew nothing about?
Below are 5 ways in which small business owners can incur the wrath of the IRS without realising it:
1. Failing to accurately report income
Whether you’re a freelancer, are paid in cash or by contract, the IRS must be informed of all business income, and any under-reporting may go heavily punished. Note that any fines and penalties incurred, must be paid on top of what you owe in taxes. Those who are self-employed may not know that they are required to pay taxes, or may intentionally avoid paying them, and in many instances, are not aware that they are responsible for tax returns that go as far back as six years.
2. Claiming non-business expenses
It’s always best to keep your business expenses separate from your personal expenses, which can help avoid over-reported expenses, such as private travel. Deductible business expenses must not be out of the ordinary and must be necessary; if you’re not clear on what counts as business expenses and what does not, check with a tax professional.
3. Not reporting Trust Fund Taxes
All employers must withhold taxes from the earnings of their employees, which are held ‘in trust’ until they are paid to the U.S. Treasury. This includes taxes such as Income, Social Security, Sales and Medicare, each of which must be reported to the IRS and are not permitted for use within the business. A failure to report such taxes, or inappropriate usage of them, will be deemed tax fraud.
4. Failing to pay self-employment tax
If you’re self-employed, you’re required to pay self-employment (SE) tax, comprised of Medicare and Social Security taxes to the Treasury. SE tax is calculated once expenses have been deducted, and doesn’t include any other taxes that as a self-employed individual, you might be required to file. As such, it’s important that those who are self-employed consult with a tax professional to ensure that they’re paying everything they’re required to.
5. Not sending estimated quarterly taxes
Owners of small businesses will not have any taxes withheld from a paycheck in the same way that employees earning a wage do, but that doesn’t mean that they don’t still owe the IRS taxes. Let’s say that as a small business owner, you predict a tax liability of upwards of a $1,000. You will then be required by the IRS, to send them estimated quarterly tax payments; failure to do so can incur a huge and highly unwelcome tax bill at the end of the year, and penalties, too!
Incurring the wrath of the IRS isn’t something for small business owners to worry about, provided they arm themselves with the necessary knowledge about their tax paying responsibilities. The best way to ensure that you never make any of the 5 mistakes above, even unintentionally, is to work closely with a tax professional, such as an accountant.
At Heyer Inc, we proactively assist our individual and small business clients in meeting their goals. Our key area of focus is ensuring that our clients remain compliant with federal and state tax laws by providing them with high quality accounting and tax services Miami. If you are looking for an individual accountant in Miami, heyer inc would be a right option.
