Taxation issues are surely very “taxing”. The Auditing bug cannot be avoided and businesses might as well be prepared for it. Listed here are the most silly tax mistakes made by businesses, especially small business and SMEs, that they inadvertently fail to avoid.
1. Not maintaining financial records
Business heads are so engrossed in numbers: sales projections, profits, revenue, et al. But the numbers they should be most concerned with are the ones on their financial records. Yet, these are the very entities they ignore. Businesses should keep their records and annual accounts updated. Invoices, sales, receipts, checks, payments, and anything and everything, no matter how small, should go into the financial record documents if it is associated with the company’s finances. What happens if you fail to do so? You end up paying lower taxes or higher taxes than you should. Even if you did pay the correct amount of tax, auditors will still raise eyebrows (and issues of course!) if you do not have proper financial documents to substantiate the taxes paid.
2. Overlooking deductible expenses
Do your financial records maintain business and personal expenses separately? Can you track your deductible expenses? If not, then you are bound to stay out of the good books of auditors. Proper financial records are those that ensure business and personal expenses are clearly distinguished. Payments made from personal accounts for business purposes are deductible. Anything other than that is not deductible. Remember!
3. Not staying informed about legal updates on taxation
One of the silliest taxation mistakes made by businesses is that they do not stay well-informed about changes in tax laws. Businesses should follow notifications and circulars to keep themselves abreast about any changes in tax laws until they release an app for that!
4. Indulging in tax frauds
Some tax frauds are major and some are not. Big or small, a tax fraud is perhaps the biggest mistake you could make to jeopardize your business. Some companies pocket a percentage of indirect taxes levied on customers. Others find other means. Auditors have their way of identifying funny tactics. So quit the bad and get honest.
5. Not correctly distinguishing independent contractors and internal employees
Confusion between independent contractors and employees on your payroll may land you in some serious trouble. Tax liabilities are different for employees and independent contractors. Employers are required to pay a percentage of employment taxes for workers employed by them. Non-payment of these taxes attracts penalties and interests. Stating that an employee is an independent contractor to avoid taxes is a big no-no.
There are a zillion legal ways to save on taxes. Companies should seek assistance from reputed accounting and taxation service firms or hire corporate advisors to help them make the right investment choices and to save on taxes. Going the illegal-way to avoid taxes not only attracts gruesome penalties but also poses a risk to the reputation of the organization. Avoid these silly tax mistakes and face auditors without breaking a sweat.