Tax season has come to an end, yet many small businesses have filed for extensions. That means there are still companies at risk for potential issues with the IRS. How can you avoid them? You can start by being aware of the most common tax filing blunders made by small businesses.
Attempting to Hide Income
It can be tempting to reduce your tax bill by hiding cash transactions. However, the IRS knows that small businesses and sole proprietors are far more likely to hide money than corporations and employed tax payers. As such, the IRS scrutinizes these at-risk businesses closely.
Gas stations and convenience stores seem to be some of the most affected businesses since many of their transactions are cash transactions. Additionally, those who run professional consulting, scientific, and technical service jobs have also been identified as high tax avoidance businesses.
It is also worth mentioning that sole proprietors and independently contracted employees often have trackable income. In fact, any business you provided at least $600 in goods or service to has to report that expense to the IRS. Because of this, the IRS probably knows how much you made already. Hence, it is important that it is reported.
Going Overboard with the Deductions
One of the biggest benefits to being a small business is that you get to take out more deductions than many others. Unfortunately, the IRS also knows that you are more likely to claim deductions that are not exactly deductible. For example, if you attempt to claim an entire vacation as a business deduction, simply because you met with one client for an hour, you may find yourself in serious trouble. It is also worth noting that, during startup, you can only deduct up to $5,000 in start-up expenses. The rest must be depreciated over the next 18 months.
Taking a Home Office Deduction
The home office deduction is easy to calculate, but this deduction is also one of the biggest mistakes that small businesses make. You can only claim the home office if you dedicate the area solely to business. You cannot use it for anything else—not even for a single day. Otherwise you lose the deduction. Do not get caught in this trap: when in doubt, leave it out!
Contact Our Experienced Small Business IRS Defense Attorney
If your small business owes money to the IRS, or you have recently come under audit, avoid the temptation to cut corners or save cash. Dealings with the IRS are serious matters, and they should be treated as such. Contact the Law Offices of Eric Zelazny for guidance and assistance. Call 708-888-2299 and schedule your free consultation with our Tinley Park small business IRS defense attorney today.