Managing Taxes as a Business Owner: Three Ways Proper Record-Keeping Can Help You Avoid Issues with the IRS

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IRS issues, Cook County IRS issues lawyer, record-keeping, tax records, small business taxesWhether your business is large or small, properly managing your company’s money is crucial when it comes to making and maintaining a profit. Solid financial record-keeping is a must in order to ensure a successful operation, and it is often the factor that helps business owners avoid IRS issues when tax season rolls around. All it takes is a few minor missteps—or one major one —for your business to end up with hefty fines and other damaging penalties due to poor tax practices.

The Power of Accurate Record-keeping

In general, good record-keeping is a valuable tool for sole proprietors, partners, and corporations alike. It allows you to do a number of things for your business, including monitoring overall progress, keeping track of deductible expenses, identifying income sources, and much more.

One of the biggest ways record-keeping assists in financial matters is by giving you access to the information you need to prepare accurate financial statements in an organized, clear format. Having these financial snapshots on hand allows you to report your tax information correctly and efficiently.

Consider the following reasons why maintaining accurate records of your finances can help lessen your chances of running into trouble with the IRS:

  • The support of your financial claims. There may be an instance when the IRS chooses to do an inspection of items you report on your taxes. For example, if you make certain deductions for business expenses, the IRS may need to see receipts and a clear record that shows proof of the amounts you reported. Having a complete record of this financial information will not only help the inspection process run smoother, it may save you from potential penalties for false or incorrect reporting.
  • The separation of business and nonbusiness information. Just as it is important to have a clear record of your expenses and any claims you make for business purposes, having proof of other personal finances, such as sources of income and expenses, is a must. Maintaining good financial records will help you separate your business and personal information, making filing your taxes—and answering to the IRS about your returns—conflict free.
  • Determining estimated taxes. If you are a sole proprietor, partner, or S corporation shareholder and you expect to owe a minimum of $1,000 when you file your return, you will be required to pay quarterly tax payments, or estimated taxes. In order to calculate the estimated taxes you will owe, however, you will need concise financial records that break down your income information. You will need to calculate your expected adjusted gross income, taxable income, and credits for the year, as well as your deductions. Paying the correct amount of estimated taxes can save you late fees and other fines the IRS may charge you when it is time to file your company’s return.

As a rule of thumb, business owners should record everything from purchases and sales to payroll. If you are concerned with the accuracy of your current financial records and how they may be affecting your standing with the IRS, speak with a knowledgeable Cook County IRS issues lawyer right away. Call the Law Offices of Eric G. Zelazny at 708-888-2299 for a personal consultation.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

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