By Analytix Editorial Team
Tax season can either prove to be a nightmare for a small business or provide a chance to strengthen the business’ position through meeting payment obligations and deadlines. For most small businesses that operate within budget limitations, the bookkeeping and accounting is mostly carried out by the founders themselves to ensure diligence and accuracy in the business’s figures. However, this also means that essential bookkeeping is challenged by avoidable errors. Consider some of the following facts:
The IRS processed more than 245 million tax returns in the fiscal year 2017 and issued nearly $437 billion in tax refunds. Further, more than 55 million taxpayers received help when they sought it out from the IRS authorities, thus going to show how the IRS is alert to the complexities involved in tax filing and that help is available to those looking for it.
Here are some common mistakes made by a small business when filing business taxes.
Calculating tax payment obligations is one of the steps that is open to miscalculation. Taxation depends on several factors, including business structure (S corporation, C Corporation, Proprietorship, Partnership, etc.), business profits and losses, etc. Influencing factors such as employee payroll or available deductions on factors such as transportation and entertainment, can also add up and impact tax obligations.
This can be avoided by planning for tax return filing well in advance.
The IRS website makes it clear that failing to pay is different from failing to file the taxes. For businesses, it is very important to file tax returns on time, regardless of whether the actual payment can be made on time or not. Further, there is the option of partial payment or trying to pay as much as possible, in order to reduce the penalty payouts and additional interest payouts on the total tax due. The IRS also works with arrangements where tax is paid out in installments.
Ensure timely payment by tracking expenses and maintaining reliable accounting at all times. Businesses can utilize digital tax workflows, a feature of automated accounting, to help with tax time preparation and to ensure timely payouts.
Deductions and credits are allowed to businesses and can help reduce the income liability. Tax credits come in several forms, including for purchasing vehicles that are eco-friendly, or for investments made in research and development, or for remodeling premises to make them disabled-friendly, etc. Tax deductions help reduce the overall taxable income. Startup costs, purchases made for equipment, infrastructure, and assets for the business, and employee payroll as per federal guidelines, all are qualified for business deductions and can help save precious money.
Track purchases and business investments and seek professional help to correlate them with tax credits and deductions and to check if the business can indeed claim them to reduce the tax liability.
Tax credits have a time limit that needs to be paid attention to. Once over, the credits can no longer be claimed. Late business tax payments need not be paid at all if there was reasonable cause for the delay in the first place.
However, these facts are not known to many business owners. Tax preparation is a specialized domain and small businesses may stand to lose if they are not well-prepared.
Not hiring a professional expert for tax filing can cost businesses not just monetary losses, but also loss in the form of credibility and transparency in the business. From timely filing of taxes, to taking into account due credits and deductions before the deadline runs out, to ensuring paperwork is in order well before time, a professional can optimize tax time to ensure the business benefits both in terms of monetary savings, as well as reinforcing trust in investors and shareholders through a positive financial-health report.
Hiring a professional expert ensures tax filing mistakes are avoided and that businesses optimize the opportunities available to reduce the overall tax burden in a legitimate manner. Digital tax workflows and automated tax processes can greatly help small businesses in managing tax filings better.
What are your views on tax filing and how do you resolve the challenges faced by you in managing your business taxes? We would love to hear from you.
Analytix Solutions offers customized solutions for businesses ranging from accounting and bookkeeping services to ensuring hassle-free filing of business taxes. For more information on how we can assist your business, call us at 781-503-9004 or email us at [email protected].