If you’re someone who happens to own a small business, then aside from making sure that your customers are happy and you’re making a profit on the products or services that you have to offer, one of the other top priorities that you have is keeping your books straight; especially as you prepare for tax season.
In the effort to help you to just that, we wanted to provide you with a list of five tax issues that many small business owners face. This way, you can make the choices that will prevent you from having certain tax issues this year and in the years to come.
Not hiring a professional accountant. Honestly, it is our personal opinion that one of the biggest mistakes small business owners make is trying to do their taxes themselves. Aside from the fact that running your own company already has the potential to be pretty overwhelming, as you’re just starting to learn the “ins and outs” of how a business works, it’s going to be hard for you to know all of the tax laws and deductions that apply to you. That’s why it is well worth the investment to hire a professional tax accountant to do your taxes on an annual (and preferably quarterly) basis.
Not choosing the right corporate structure. Another mistake that a lot of small business owners make is failing to choose the right corporate structure for the company. Being that you can choose to incorporate as a sole proprietorship, a partnership, a C corporation, an S corporation, an LLC, or a non-profit, it really is a good idea to do a thorough amount of research to see what status would truly prove to be best for you.
Not keeping thorough records. If you’ve ever talked to someone who’s been audited before, they’ll tell you that one thing they wish they had done was keep better records. Remember, when you’re a small business owner, you are going to have to account for every penny that you spend. This means that you’re going to need documented proof, which is why you have to put forth a concerted amount of effort to keep very thorough records (software like QuickBooks can help you to do just that).
Not properly classifying employees. If you were to ask a small business accounting firm like SDA CPA Group, P.C. for some tax tips for small businesses , one of the things that they might tell you to do is make sure that you properly classify your employees. What this means is that if you have full-time and contract workers, make sure that the right individuals receive a W-2 (full-time workers) vs. a 1099 (a contract worker). If you list a full-time worker as a contracted one in order to avoid paying certain taxes, that will result in a pretty stiff penalty. This brings us to the final point.
Not paying payroll taxes. If you have full or part-time employees working for you, there are a certain amount of federal employment taxes that you will need to pay. In order to do that, you will need to withhold a certain amount of each employee’s income, Social Security and Medicare taxes, plus you will need to pay federal unemployment tax too. If you fail to do so, the penalty is paying 100 percent of the taxes that are owed plus any interest that has been accrued. For more information on small business taxes, visit IRS.gov and put “small business” in the search field.