Common Tax and Accounting Mistakes for Small Business Owners

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At Gamarra, CPA we are dedicated to helping our clients solve challenges and implement solutions to better manage their businesses. Small businesses are a major part of the U.S. economy, and therefore get a lot of attention and scrutiny from the IRS. There are many common mistakes small business owners make regarding taxes and accounting that can lead to incorrect or late income tax filing. Here are ten things to keep in mind in order to minimize tax and accounting errors:

·        {C}{C}Record-keeping: failing to keep track of all income and expenses related to the business can lead to incorrect estimations. Always consider either using an excel spreadsheet or Quickbooks to keep track of your income and expenses. 

·        {C}{C}Understanding tax rules: not understanding the complex tax regulations may lead to late or incorrect tax filing, as well as possibly over-looking tax deductions. Depending on your type of business, your tax deadline will either be March 15th or April 15th. If you need more time to file your tax returns, contact us to aid you in filing an extension to file your tax return. 

·        {C}{C}Using professionals: professionals such as CPAs, Enrolled Agents, and others can help avoid costly and time-consuming mistakes. Generally, a CPA has broader knowledge and experience than an enrolled agent. Always ask if the professional has experience in your industry as this is central to successfully taking advantage of all tax credits that may apply to your industry. 

·        {C}{C}Payroll taxes: paying all federal employment taxes should be a top priority for small businesses, as business owners can be held personally liable for 100% of unpaid payroll taxes. Bear in mind that payroll taxes are held in 'trust' by an employer and legally belong to the employee. As such, always attempt to timely pay the payroll taxes. 

·        {C}{C}Classifying employees: there are different legal and tax implications regarding employees and independent contractors, so it is important to classify them correctly. The general test is one of control, skills, and other key factors. Always check with your legal counsel on whether your classification criteria satisfies your State's requirements. 

·        {C}{C}Choice of business entity: small business owners’ choice in business entity between entities like a sole proprietorship, c-corporation, or others will affect tax planning, liability, accounting, and more.

·        {C}{C}Asset tracking: ghost assets can be physically missing or unusable, but still count towards a small business’ tax and insurance liability.

·        {C}{C}Cash vs Accrual Accounting: choosing which form of accounting to use depends on several factors unique to small businesses.

·        {C}{C}Managing tax debt with the IRS: it is important to keep in contact with the IRS if the small business is facing tax debt in order to work something out.

·        {C}{C}Keeping track of important deadlines: April 15 is not the only tax deadline to be aware of; some taxes are due quarterly.