Small business owners (SBOs) have more than enough on their plate – generating new business, keeping current clients happy, and coming up with new ideas to grow their company (to name but a few). Add in accounting, number crunching, and taxes, and it can quickly become too much for even the most ambitious of entrepreneurs. The consequences for taking on too much can be many. One, in particular, has to do with mistakes in tax filings. To help SBOs combat this, our blog today will delve into some of the most common tax mistakes business owners can make.
If you have ever been audited by the Internal Revenue Service, you know well the hassle it can cause. What you may not know, however, is why you were audited. On the other hand, if you have never been scrutinized by the all-seeing eyes of the IRS, you probably want to keep it that way. To help you avoid raising any red flags, inside this post, we are going to look at some common reasons you might get your taxes audited.
It is no secret that the number of individuals that get their taxes audited each year is on a steady decline. In total, less than 1% of filed tax returns caught the eye of the IRS last year, and as the budget for the Internal Revenue Service continues to drop (the organization has seen a steady decline in funds the past few years), that number will only continue to fall, as fewer resources are available to actually perform the auditing.
Tax Audit Red Flags
While your odds are good that you will never be pulled aside for further inspection, there are some things that novice and professional tax prepares alike need to be aware of in order to avoid raising a red flag that could, ultimately, result in a tax audit. This is true for individuals and small business owners alike.
Bringing Home the Bacon
Fair or not, tax filers that make more money than the average Joe are automatically at higher risk of receiving a red flag. If you make $200,000 or more, you stand a higher chance of being inspected. Go beyond the million dollar mark, and your odds go from one in 120 (for individuals less than $200k per year) to less than one in fifteen. That is quite a significant drop!
Because of this, high-income earners need to be extra cautious when having their taxes prepared.
Not Reporting Income
Of all of the mistakes you can make when filing your taxes, not reporting all of your income has to be the easiest to avoid. If you received a 1099 or W-2 from an employer or boss, you can bet your bottom dollar the IRS did too.
When the IRS computers compare the data they receive from employers to the data that you submitted, the mismatch will throw up a red flag and Uncle Sam will have to take a closer look at your tax filing. Skip the hassles, and make sure you report all of your earnings!
Taking Too Many Deductions
As a tax paying citizen, you are well within your rights to take any deductions that you are eligible for. However, creativity by well-meaning tax professionals and tax hobbyists can often blur the lines between what is a legitimate tax deduction or tax write-off and what is not. The IRS has been performing its job for many years now and have gathered data on what the average deduction is for virtually every income level. If your deductions are higher than the average for your income bracket, you could raise a red flag and be audited.
That being said, if you feel your items are legit and claimable, and – this is important – you have proper documentation (ie; receipts), never let fear of a tax audit deter you from claiming what is rightfully yours. Just be aware of what you are allowed to deduct and what you are not, and all should be well in the world!
If you are a small business owner (SBO), odds are you have more to worry about than the impending tax season. With so many things on your mind, it can be easy to overlook simple, yet important, tax saving strategies. Even if you have a tax professional or CPA on your side, it never hurts to arm yourself with as much information as possible. To help, Clayton, Paulk, and Associates would like to share some last minute small business owner tax tips!
For most of us here in the United States, the clock is ticking – April is right around the corner and the taxman is knocking at our doors. If you do not have a relationship with a good tax professional or certified public account (CPA), now is the time to begin your search. This is true for business owners, too, who need help with their small business accounting and financing issues year-round as well.
If you are looking to become a small business owner (SBO) and are unsure of where to start or are seeking some “friendly” advice, this blog post is right up your alley. Inside we offer some tips for first time small business owners and those looking to start their own company.
As the end of the year approaches, you may find yourself faced with some questions regarding your taxes. While your certified public accountant (CPA) or tax professional will be able to answer any questions or concerns you may have, it never hurts to educate yourself about any financial matter. To help you in that endeavor, here are some answers to common tax questions.
Now more than ever it is important to begin saving and planning for your retirement as early as possible. As the price of living continues an upwards trend and life expectancy increases, the amount of money we can anticipate needing to retire comfortably grows as well. With threats to social security and volatile stock markets, investing wisely has become more important than ever. With these thoughts in mind, this article will be focusing on money saving tips for retirement.
Last week I was in the emergency room and a nurse asked me if I had a living will (medical directive). I looked at my wife and we allowed as how we had one, but had no idea where it was or what its provisions were. This brought to mind the three documents each of us needs in the event of a medical emergency:
- Medical directives/Living will/medical power of attorney
- Financial Power of Attorney
- A will
Recently a close friend died. We received a phone call one day, went to the hospital the next and the friend was removed from life support on the third day. All of this occurred with the family having to participate in heart-wrenching medical decisions because the friend did not have a medical directive/living will/medical power of attorney. The friend had done no planning, had no will and left loved ones to sort through it all, including providing for a dependent child.
Lighten the load for your loved ones. If you have questions, we’re here to help. Contact Clayton Paulk