Businesses face a myriad of challenges. Small and medium enterprises face a major challenge when the time for tax preparation comes. Business owners need to understand how taxation works in order to make the right preparation to file returns. Without having proper Riverside tax preparation measures, it is easy to make serious mistakes and get overtaxed, trigger an IRS audit or face financial penalties. If you’re not a professional accountant or an expert in tax matters, it helps to let the professionals handle the issue of taxes. Here are some mistakes that businesses should avoid during the tax preparation process.
Failing to keep Mileage Logs
This is one of the most common mistakes that small businesses make which affects how they prepare to file tax returns. Sometimes business owners will use their personal vehicles for business purposes and then fail to make records. When this happens, they will not be able to make deduction claims for the fuel that they used. It helps to have documented mileage logs in order to claim deductions when filing taxes. In this same vein, businesses sometimes mix personal finances with business finances because they don’t have different financial accounts for personal and business needs. This can lead to confusion when during your Riverside tax preparation process. It could also get you into trouble with the IRS and lead to auditing.
Keeping Financial Records Haphazardly
It is a huge mistake to have financial records that are disorganized. Conventional Organizing is essential for businesses, as because it helps to minimize their taxable income. With adequately organized financial records, you get accurate figures when getting ready to file taxes. It helps greatly when a small business has a tax organizer as it becomes easier to deal with issues that the IRS might need information about. Should you get audited, you will not need to worry if you have been keeping track of your financial dealings.
Having Wrong Structures and Wrong Employee Classification
If you have employees that have been given the wrong classification, your taxes might get affected negatively. You might pay heavier taxes and get in trouble with the law. The laws that govern the classification of employees as either independent contractors or employees are very stringent, and the penalties for abusing this law are costly. If you’re the owner of the business, you must classify yourself as an employee and must have an equitable salary. If you don’t do this, you might attract social security taxes in the form of self-employment. The wrong business structures can also affect your taxes. You should structure your business as an S-Corp or an LLC and not as a C-Corp. A C-Corp will attract double taxation if you are unable to account for some items as self-employment taxes.
Income and Retirement Pitfalls
The process of Riverside tax preparation should also avoid the pitfalls of over-reporting your income and putting more than is expected to your qualified retirement plan. The law stipulates what you should contribute to your retirement plan. When you exceed that amount, you could be penalized on a yearly basis until you amend the contribution. If you report more income that you actually earn, you will pay more taxes than you should. It helps to work with your accountant and keep them informed so that they can advise you accordingly.