Biggest Tax Mistakes Businesses Make
By Tim Frye
Businesses nowadays are more under the gun than ever. With expanding EPA regulations, and the IRS increasing its surveillance and record keeping, tax mistakes can more costly than ever before. This article will look at the top tax mistakes that businesses make and will look into how to avoid these missteps.
Keeping Faulty Auto or Travel Records
The IRS is very focused on self-employed taxpayers and businesses, and is always looking to crackdown on those who are claiming erroneous business expense deductions such as auto or travel deductions. If the taxpayer is employing a vehicle for business purposes, he should be prudent in recording the accurate mileage in a daily log. He or she should be doing the same with travel expenses, however a daily log is only required when it comes to vehicle mileage.
Not Withholding Taxes from Independent Contractors
In the case in which independent contractors are being paid, the employer must receive a valid taxpayer ID from the individual or individuals, and taxes must be withheld if the person does not have a valid taxpayer id.
The Treatment of Employees as Independent Contractors
The IRS has strict rules regarding the classification of an independent contractor vs. an employee. Many businesses will incorrectly classify employees as independent contractors in order to avoid paying the FICA tax on the employee’s income. As a business, it should be clear whether workers are employees or are independent contractors. In the case in which they are employees, federal income taxes and FICA taxes must be withheld, and the other half paid by the employer. Obviously and understandably, the IRS will levy harsh fines and penalties on businesses who classify workers incorrectly. If the business owner is unclear, the IRS will answer an inquiry through the form W-8.
Failure to Report Large Cash Transactions in Excess of $10,000
The IRS definitely wants business owners to report any large cash transactions over this designated amount and taxpayers can read on how to report these transactions on the IRS Form 8300.
Failing to Pay Sales Tax on Time
Essentially, sales taxes are trust fund taxes, in that they are to be collected by the business owner and kept until the funds are due to be paid by the state. The failure to pay back these taxes collected on time will cause the state department of revenue to levy additional fines and penalties on the sales tax amounts.
Comminglince of Business and Personal Funds
One thing the IRS despises more than anything else is when a business owner commingles his or her personal funds with the business funds. This tactic makes everything tax related so much more difficult, and in many cases will cause the IRS to disallow any deductions all together so as to avoid further complications. From the onset of a taxpayer’s business operations, there must a clear and obvious distinction between personal and business funds and transactions.
All of these tax mistakes can be avoided by simply being aware, and following through to keep up with all of the tax requirements of the business.
Looking for tips on how to avoid making business tax mistakes? Go to prontotaxclass.com and click on our blog section to find informative articles to help you along the way!