It is once again tax season which requires a lot of attention and detail to start and run a business. The main drawback is busy business owners only think of taxes once the deadline arises which is just one of the many mistakes that small business owners make that can cost them big in the long run.
Some of the other common tax mistakes that may affect your business,
In the United States, we have a pay as you go tax system, meaning that one must pay taxes as they earn money throughout the year. The IRS has laid out a schedule for business owners to pay their taxes 4 times throughout the year. Failure to pay ones taxes in the given timeframes can result in fines. Below is the penalty for making no payment at all during the 2020 fiscal year. These rates are subject to change in 2021 but have not been published by the IRS yet.
You’ll owe four (4) percent of the underpayment times the number of days between the date the estimated tax payment was due and the date you make the payment with your tax return divided by 365.
If you do no plan for the tax season, you will expect to pay a lot of money in taxes. Most businesses usually deal with the tax season at the end of the year which can cause one to lose out on potential tax deductions from proper record keeping. The errors in bookkeeping may increase your expense and hence it’s vital to keep track of your transactions.
There are different structures that one can choose from when starting a business. You may receive a plethora of advice from friends and family on which entity to choose, but they may now be fully aware of the tax implications that come with each structure, as well as the roadblocks that it may cause down the line as your business evolves.
When starting out your business, you do not need to file your business as a corporation. In fact, one can file their business as an LLC or LLP which not only provides them with a more advantageous tax bracket, it also provides some additional protection from personal assets being targeted in a lawsuit.
The entity structure that you pick is ultimately up to you, so make sure that you are aware of how the choice you make will effect all aspects of your business and not just one area.
