To minimize the chances that the IRS will call you on the carpet, make sure you know the 7 deadly tax sins.
You've heard the expression "it's just business." The sin is failing to put this into practice. Commingling business and personal activities can mean you'll lose out on business write-offs you may otherwise have been entitled to claim. And, even worse, it's a bad business practice.
The fix: For taxes, be sure to avoid commingling by maintaining a separate business bank account and credit card.
2. Being too casual about running your business
The fix: Take the time to write a business plan that shows how you intend to make a profit. If things aren't working out as planned, talk to experts, change your course, reduce your overhead, and take other actions that demonstrate you mean business.
The fix: Keep a record of company outlays on your behalf and arrange for a timely reimbursement (e.g., the end of each month or the completion of a job).
The fix: Use a promissory note that states the interest, repayment intervals, and what happens on default.
6. Paying creditors before the IRS
When cash is tight, don't overlook your obligation to deposit employment taxes. Failing to do this can lead to a 100% personal penalty for what's owed.
The fix: Set payroll funds aside so you won't be tempted to use them to pay other creditors, such as utility companies and vendors. Of course, if you find yourself slipping into a cash crunch, take immediate action to avoid fiscal recklessness (talk to experts if necessary).
While most small business owners use tax pros to help them, there are some dangers to avoid. Recognize that you, and not your advisors, are liable for your business-related taxes. Experts are human and, on occasion, make mistakes, such as filing late. Even worse, some are subpar or even dirty and can abscond with your tax money or commit serious tax errors.
The fix: Don't assume that things are being done right. Look over tax filings, tax deposits, and all IRS correspondence that concern you and your business. Don't hesitate to get a second opinion if working through a gray area.
