Mark Briggs Lawyer: Filing Taxes for a Small Business
For small business owners, few tasks are as critical as the timely and accurate filing of federal and state taxes. Using the following best practices for properly tracking and reporting income and expenses, working with the right professionals, and following all tax-related laws and regulations will help keep your business out of hot water and on the path to success.
Keep accurate records
Staying on top of taxes begins with appropriately tracking business activities, including income from all sources and expenses — including equipment purchases and personnel costs. Small businesses often find themselves in trouble over improperly categorizing employees as independent contractors and failing to pay appropriate employment taxes; so keeping accurate records can help avoid this mistake. Keep track of where your business may have a legal presence to ensure payment of state sales taxes and other fees. Make sure records about equipment are accurate — including amounts paid and dates any equipment or vehicles went into service. This will help you accurately calculate depreciation expense.
Work with knowledgeable professionals
If you choose to handle filing your business taxes yourself, invest in tax preparation software. I think for most business owners it is smarter to hire a tax accountant with experience in your industry and/or with your size of business. If you end up owing money to your state tax agency or the IRS, work with your tax professional to mediate the situation and work out payment plans. For managing benefits such as your company’s retirement plan or health insurance, I also recommend hiring the right financial and insurance industry professionals, because these areas are complicated and can cost you dearly if you make a mistake. Spend your time focusing on what you know how to do best: running your business.
Understand and abide by state and federal rules
A common mistake by small business owners is using withheld payroll taxes as short-term capital during lean times. Your tax professional will tell you that this is a dangerous practice. Correctly calculating and paying estimated taxes on time also seems to trip up many small businesses. Calculating incorrectly or underpaying either of these items can cause major headaches down the road. Some business owners also incorrectly believe that in the event of an audit, the IRS will need to prove wrongdoing; in fact, the burden of proof is on the taxpayer. So, investing in good systems and working with qualified professionals is a smart move.
Always consult with your tax adviser about your business’s unique tax situation. For forms and general tax information, visit the IRS Small Business and Self-Employed Tax Center.
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