Starting your own business is a steep learning curve and you’ll have to get your head around a lot of new information. Working out your finances is probably the hardest part because there are a lot of differences between business and personal money management. Your tax affairs, in particular, are a lot more complicated when you’re running your own company. It’s important that you know what you’re doing because if you make any mistakes, you could end up in some serious legal trouble. Most new business owners find themselves in the same position and the end up making one of these common mistakes.
Not Reporting Information Accurately
When you’re reporting your finances, any inconsistencies are going to raise a red flag and you’re likely to be audited. Information will automatically be matched up with tax returns so you have to make sure that everything matches up. For example, if you’ve received payment from a client and they’ve listed it in a certain month, you need to use the same date even if you didn’t actually receive the cash until a bit later on.
You’ve also got to be careful making estimates for certain figures. If you don’t have all of the information to hand, you have to get hold of it rather than just putting down a rough guess. You’ll be asked to provide the accurate information at some point so it’s easier for you to do it right the first time around.
It should go without saying that you shouldn’t try to lie on your tax forms either. People often think that they can get away with it if they only make small changes that aren’t likely to be noticed. You might be lucky and get away with it, but more often than not they’ll get spotted. If you’re found deliberately lying on tax forms, you’ll end up in some serious trouble.
Failing To Keep Records
You’re never going to be able to report information accurately if you don’t keep good records of all of your income and expenses. You’ll need receipts for all of your purchases if you plan to list them as expenses. It’s vital that you’ve got proper records because if you do get audited, you’ll need to provide proof that everything on your tax forms is correct. It’s better to be overly cautious here and keep records of every tiny thing, even if it doesn’t seem that important right now.
Not Claiming Refunds
It’s fairly common for people to overpay on their taxes so you’re probably eligible for a refund. If you aren’t claiming it, you’re just putting money down the drain for no good reason. One of the most common reasons that people don’t claim their refund is that they don’t know how to calculate it and request that money back. That’s why there are companies that specialize in tax refund products who can help you through the process. Head over to the sbtpg enrollment to find out how you can sign up. That extra chunk of money that you’ll get from a tax refund can be a huge help to your business, especially in the early stages when cash flow is a big problem. If you don’t claim it, you’re just making things a lot harder for yourself.
Not Knowing The Difference Between Avoidance And Evasion
People often think that these 2 terms mean the same thing, but they really don’t. Tax evasion means not paying the taxes that you’re legally obliged to pay. In other words, it’s illegal and you should absolutely not do it. But it’s perfectly ok to avoid certain taxes by using perfectly legal means. By moving your money around and putting it into things like property, you can reduce your tax bill by quite a bit. Don’t get the two mixed up and end up engaging in illegal activity.
If you’re hiring independent contractors and freelancers to do work for your company, your tax affairs can get a little tricky. Things get a lot more difficult if you aren’t classifying them properly. The IRS has strict guidelines for classifying employees which you need to understand fully and stick to at all times. Often, it comes down to the level of control that the company has over that person. If you’re setting their hours and giving them strict instructions on how and when to work, they’re probably an employee of the company and not an independent contractor. If you make any mistakes when you’re classifying your employees, you could end up getting payroll penalties if you’re audited.
Going Overboard With Deductibles
A lot of your business expenses are tax deductible but people often make the mistake of going overboard. You might think of it as being flexible but the IRS will think of it as tax fraud. When you’re listing your expenses, you’ve got to think about where the line is. Things like entertainment costs and meals can be put on there, but only if they’re business related. Don’t start collecting receipts every time you eat out and try to claim them on your tax forms. You also need to remember that there are deduction limits for certain things ($5000 for entertainment) and if you go over, you’ll end up getting audited. Anything that seems excessive is going to invite investigation so it’s better to be cautious and limit your deductibles.
Filing Forms Late
Most people don’t think they’re going to make this mistake because even if you’ve made a load of mistakes, you’ll at least get the date right and file the forms on time. But you’d be surprised how many people manage to get forms in late. The main reason is that they underestimate just how long it’s going to take to get all of the information together. If you want to avoid getting any late fees, always start early and leave yourself plenty of time to sort it all out.
If you make any one of these mistakes, you’ll end up getting hit with a big fine or, in the worst cases you could even end up in prison.