Tax Obstacles You Need to Avoid as a Business Owner

A lot goes into starting up your business. You need all your plans thoroughly checked and executed. It’s a lot of work and a lot of knowledge goes into a successful operation. Even if you are proficient in all of this, issues will present themselves.
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There are a lot of topics in your business you will need some outside help. Even once you’re up and running chances are pretty high that you will be seeking advisors to make sure you are moving in the right direction. This article will zero in on one of the pieces of the puzzle: Taxes.

One of the prime reasons for start-up failure is not understanding taxes. Unless your company provides tax preparation services, this can be a tricky area that could lead to demise. You need to know how and what to file for your business.

Your Entity

Are you running an LLC, Corporation or a Partnership? Are you a sole proprietor? There are specific issues with each of these you will need to know how to approach.

Sole Proprietors have no safety net between themselves and their creditors. The business owner holds entire responsibility if anything goes wrong.

Limited Liability Companies (or LLCs) need 3 or more members to be recognized accordingly. The IRS will view a single member LLC as Sole Proprietorship. Two member LLCs the IRS sees as partnerships.

Corporations must file returns separate for the business and keep their own bank accounts.

Estimated Taxes

Estimated Taxes can be exceptionally tricky to figure out. A tax preparation service takes great care in evaluating these quarterly taxes to make sure you stay in good standing with the IRS. If you attempt and fail to meet expectations, you will encounter penalties.

Inadequate Payment of Estimated Taxes

The estimated tax penalty is one of the most common issues small businesses experience. This penalty is a pitfall easily avoided by using a professional tax preparation service.

Schedule C

Schedule C remains a prime area for IRS audits. Your profits and losses need to have consistency against others in your industry. The “Profit and Loss From Business” form lists all of your companies ingoing and outgoing cash. Keep extensive, thorough records of all money going in and out of your business. In the case of an audit, this documentation will help keep you out of harm’s way.

Self-Employment Taxes

Estimated taxes do not only concern income. Self-employed individuals also need to take things like Social Security and Medicare taxes into consideration. Employees have the advantage of splitting these costs with their employers. When you are self-employed, these taxes all fall into your lap. Make sure you take these costs into consideration when estimating your quarterly taxes.

These are only some of the most popular tax mistakes small businesses make that an honest and transparent tax preparation service can help you avoid. If you aren’t confidently staying within compliance with the IRS, you could pay dearly for those mistakes.

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