What are the common tax problems for all businesses?
Frugality is the new term in some business corridors, especially with small enterprises. The outbreak of the COVID-19 pandemic led to more than a year of bruising business maneuvers that many had to take. Resultantly, I can’t blame small business owners for wanting to be frugal with their business expenses. However, I find that what’s more important above all else is to learn about common tax problems for all businesses. Why is it so? Well, COVID-19 will go at some point, but the tax law will remain. And, failure to adhere to the tax law or failure to understand it has resulted in several businesses bearing the brunt associated with the inability to implement the tax code.
Therefore, the questions you should be asking must weigh more towards common tax problems bedeviling small businesses across the country. As you read, you will notice that financial planning alone without a tax strategy is futile. So many business losses have been attributed to a lack of tax planning. The step to closing those kinds of gaps begins whenever you come across an article such as this one. Read it attentively, go back to your business and do the right thing by hiring a tax professional if you don’t have one already.
Tax professionals are trained, for years, to recognize problems. Some individuals and business owners feel these professionals are too expensive. However, the amount they charge will be small compared to an IRS audit. Some business owners may be cleared during a tax audit, but there’s no guarantee. I will tell you one thing: Paying penalties and back taxes is harmful to your business. A tax professional will help you not go down that road.
Alright, what are the common tax problems for businesses?
For me, I always see tax problems arising because of the blurred lines between tax avoidance and tax evasion. When business owners overcommit themselves to tax avoidance, sometimes they appear to be evading taxes.
The problem of tax evasion
Tax avoidance is legal, and can be through using various rules in the tax law, for example, investing in businesses that allow massive tax credits. But tax evasion can land you in jail. Examples of tax evasion include deliberately not declaring huge sums of payments hoping to cut your tax bill. Some tax evasion tactics could also include claiming massive deductions – more than you qualify for. If you overstate your deductions, the IRS might suspect foul play and audit you.
In order to report income and expenses well, you must have a proper tracking system. All your expenses must be tracked and stored. These days, we are no longer big on paper-tracking of anything, but we now can use apps and online tools to help us safely store tax documents. Also, if you overstate your expenses, you will be committing a tax crime. I hear that many small businesses are caught out each year trying to do that.
Another tax problem is that which arises because of the lifestyle of business owners. Some of you guys go out and overspend to please clients – or friends. Being a business owner requires a lot of discipline to not go overboard with your taste for top-class items. Once you buy those, for example, high-end vehicles, it draws the attention of the IRS. They assume you make more than you tell them. While on that, IRS notices are the last thing you want on you.
More so, business owners tend to underpay their personal income tax. It’s easy to pay yourself and forget to pass through what you owe the IRS. But quarterly tax estimates are mandatory. If you fail to do that, you will face a huge tax bill at the end of the tax year. Interest on unpaid taxes accrues at a much higher rate, and this can cripple your business growth.
How do you get out of tax problems?
The first thing that should come to your mind is, “Do I have a tax professional’s number in my diary?” This is so important because it is the only way we can truly help you out. Untangling yourself from tax issues is nearly impossible if you are not a tax professional, so you need to hire one.
Therefore, if ever you find yourself getting an IRS notice, or you haven’t been paying your estimated taxes, get in touch with us immediately. You need the kind of tax help that we can provide. To get in touch with me, call our office and book a call. Remember, we are still taking clients for 2020 taxes; the due date has been extended to May 17, 2021, for individuals. But all estimated taxes are still due on April 15, 2021.
People have also asked the following;
1. Do I Need to File a Tax Return?
Yes, everybody with some sort of earned income must file a tax return. Even if you have no taxes due, or you don’t have the money to pay your taxes due, the IRS wants you to file a return. It’s according to the law.
2. How do I know if I must file quarterly individual estimated tax payments?
Estimated taxes must be paid by individuals and corporates. Individuals, partners in a partnership, and shareholders in an S-Corp must pay estimated taxes if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally must make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.
3. Are profits of U.S. firms “trapped” overseas because of U.S. corporate taxes?
The Trump administration got rid of what firms thought was a tax penalty on repatriation, but still, most foreign profits remain off-shore as U.S firms seem reluctant to repatriate the money back home.
4. Do U.S. corporations pay significantly more in income taxes than companies in our peer countries?
Taxes are different in several countries. But the U.S tax regime is a bit more complicated – of course, judging by thousands of pages in the tax code. However, the U.S does not rank among the countries with the highest corporate income tax.
5. Does the U.S. corporate tax code harm American workers by making U.S. firms less “competitive”?
How individuals and companies view the U.S tax regime may differ. But evidence shows that U.S firms continue to be world leaders in several respects. This has been the case for decades. The tax code carries several favorable clauses that companies that hire tax professionals can take advantage of.
