The Top Five Tax Issues Small Businesses Face This YearTax Professionals Resource
September 7, 2012 — 1,210 views
With the multitude of tax laws in effect, and the fact that the laws frequently change, properly managing business taxes has become increasingly challenging. The total number of tax issues that small businesses have encountered this year is great, and vary depending on each situation. The most common issues that virtually all small businesses have faced this year include the following:
1. The Choice of Type of Business Entity
Tax rules, regulations, rates, and liability vary significantly from one type of entity to the next. Choosing the wrong classification can put small business owners at risk of paying too much in taxes or worse – not paying enough, which can result in stiff penalties.
2. Failure to Keep Accurate and Complete Records
Poor recordkeeping practices can create huge problems for the business owner. If an audit is required, lack of accurate records means there isn’t reliable proof that all obligations, including tax obligations, were met. Without proper recordkeeping, it’s very challenging (if not impossible) to be fully informed of the current financial state of the business.
3. Important Financial Aspects are not Managed by Outside Professionals
It’s extremely difficult to understand the inner workings of taxes, insurance, and other financial elements without the right knowledge or experience. Using the services of a tax attorney, a certified public accountant, or any other tax professional will ensure that the business complies with current tax laws, thereby protecting the business and its assets.
4. Incorrect Accounting for Payroll Taxes
The penalties for this issue are significant. A small business owner can face levies against his or her own personal assets as part of the penalty. Penalties and fines can be assessed against any or all parties involved in the erroneous accounting. In the event that the small business owner(s) have to resort to filing bankruptcy, this penalty is ineligible for discharge.
5. Not Knowing what is (or isn’t) Eligible to be Claimed on a Tax Return
Small businesses that don’t take advantage of every eligible deduction ultimately lose money. In some instances, a business must work harder to earn and maintain a certain level of profit. Claiming ineligible items can result in an audit.
Managing taxes for a small business is an integral part of business operations. For many small business owners that encounter complications with their taxes, it’s usually one of two factors creating the issue: lack of knowledge or poor management of the basics.