3 Common Tax Mistakes Made by Small Businesses
From all corners of the world, when the topic of taxes comes up, there is a collective groan.
It’s safe to say that there is not one person who looks forward to filing taxes, including when they turn it over to the professionals.
For those who are doing their taxes correctly, managing taxes for a small business should be something that is done year-round, and they should know exactly what they owe the government and what the government owes them.
By keeping all the business’s tax information up to date in real-time, filing the taxes when tax season comes is much more comfortable.
For those not keeping things up to date, a small business could end up with numerous tax mistakes, some of which could land the owner in more legal trouble than expected.
1. Not Separating Expenses
When running a small business, owners can easily blur the lines separating business and pleasure.
However, as many business owners have found throughout history, the Internal Revenue Service (IRS) doesn’t blur lines, nor does it appreciate those who do.
The IRS expects clear demarcated borders between a business owners personal and business expenditures.
Manipulating tax deductions is also known as “padding tax reductions.”
For example, using a personal vehicle to conduct business and deducting the mileage incurred during those trips is acceptable by the IRS.
But taking an extra side trip at some point to or from such business errands to buy the pet Chihuahua a Hello Kitty sweater is not acceptable by the IRS.
As far as the IRS sees it, the second the decision was made to veer off course from business-related errands to take care of personal matters, the tax deductible odometer stopped ticking.
And though it’s highly unlikely the IRS would ever find out about such a small infraction, if a small business owner makes a regular habit of such practices, it could very well catch up to them eventually.
For example, using a personal vehicle to conduct business and deducting the mileage incurred during those trips is acceptable by the IRS.
But taking an extra side trip at some point to or from such business errands to buy the pet Chihuahua a Hello Kitty sweater is not acceptable by the IRS.
As far as the IRS sees it, the second the decision was made to veer off course from business-related errands to take care of personal matters, the tax-deductible odometer stopped ticking.
And though it’s highly unlikely the IRS would ever find out about such a small infraction, if a small business owner makes a regular habit of such practices, it could very well catch up to them eventually.
2. Missing Important Deductions
Surprisingly, it’s common for business owners to either skip their deductions out of laziness or are unaware of them.
In a lot of instances, business owners are afraid the IRS will find something amiss, so they count their losses to avoid an audit.
Believe it or not, there are numerous important tax reductions for small businesses to claim.
Depending on the types of deductions one can claim and the total dollar amount it would add up to, it might be better not to cheat on small things so the deductions can be claimed without worry.
3. Not Know Their Rights Under Federal Law
Small business owners often have no knowledge of their rights.
For example, many private and business owners aren’t aware that there is a collection statute expiration date, also known as CSED for short.
A CSED is a timeframe allotted by the federal government limiting the amount of time the IRS has to collect outstanding tax balances.
Generally, the CSED only allows the IRS to pursue tax liability or other legal actions for ten years. The ten-year time limit begins the moment the taxes are filed.
For example, if you file a tax return for 2013 in 2015, then 2015 is when the ten-year period begins, which means the statute of limitations expires in 2025.
