Common Income Tax Problems for Entrepreneurs
Entrepreneurs can face audits and penalties from the IRS due to improper deductions, missing payroll tax payments, and not reporting full income.
Being an entrepreneur certainly has its fair share of benefits. You have freedoms you would never be able to enjoy while working for someone else, and you directly reap the rewards of your hard labor.
However, an entrepreneurial lifestyle isn’t always like you see on the infomercials. Instead of spending your days at the beach, you’re more likely spending them over huge stacks of paperwork. This is the side of being self-employed that isn’t often discussed.
Entrepreneurs have to wear many hats if they want to manage a successful business. However, if you want to continue running your own business, you have to stay on top of your income taxes. The IRS pays particularly close attention to self-employed individuals.
Here are a few common income tax problems entrepreneurs might face.
Lack of Documentation
As a one man operation, it can be difficult to keep track of everything.
However, it cannot be stressed enough how important it is to keep track
of all your documents. You see, if the IRS comes knocking on your door
to audit your business, you better have proof to back up your claims.
They won’t take your word for it. Instead of throwing all your receipts
and paperwork into a huge pile on your desk, organize them neatly. Also,
have backups of all your important files. The more documentation you have,
the better. If your business is being audited by the IRS for a tax problem,
contact a firm that can advocate for you before the IRS like Centsable
Accounting.
Figuring out Deductions
Small business owners often struggle with figuring out what they can deduct.
As a result, they either deduct way too little or far too much. While
you certainly have the right to make deductions, don’t go overboard with
them. Make sure all of your deductions are legitimate business expenses.
The IRS doesn’t take too kindly to individuals trying to make shady deductions.
Many times, though, entrepreneurs simply deduct something they shouldn’t
have and are now faced with an IRS audit. If you are facing an IRS audit,
get help.
Missing Payroll Tax Payments
Business are responsible for sending their employees’ federal income tax
and share of Medicare and FICA to the U.S. government. Sometimes, these
trust fund taxes are wrongly used to pay for rent, salaries, or other
expenses. Thus, when it comes time to make a payroll tax payment, the
business can’t afford it and skips it. Unpaid payroll taxes can build
up because often the thought is if I make this payment, I’ll get in trouble
for past payment I’ve missed. The best solution is to set aside payroll
tax for the government and to not spend it on anything else. If missed
payments happen accidentally or otherwise, contact a tax resolution professional
to get this type of tax problem resolved.
Reporting Full Income
Another common income tax problem for entrepreneurs is reporting their
full income. While there are certainly some less than honest small businessmen
who try to hide some of their income, most entrepreneurs aren’t like that.
More likely, you have a difficult time reporting your full income because
you don’t always have a paper trail for your transactions. This goes back
to the first problem. Always keep detailed records of every business transaction!
Not reporting full income can trigger an IRS audit so get the help of
a tax problem specialist if you find yourself in trouble with the IRS
for not reporting full income.
Income Tax Solutions for Entrepreneurs
If you own a small business, you have a lot of responsibilities. Keeping
track of everything can be too overwhelming a task for one person. That’s
why you should consider letting an accountant help you out. This will
save you time and money.
About Becky Schmitz
Centsable Accounting has a team of tax resolution experts on hand to assist you with any tax problems you might be having. They can help your business with tax problems that result from missing payroll tax payments, taking improper deductions, and not reporting full income. You have enough to worry about on a daily basis. Let the professionals take care of the tax problem headaches. Contact Centsable Accounting for a free consultation today!