The 7 Ways Business Owners Get In Trouble With Taxes (And How We Protect You!)
We recently read a great article on Inc.com titled “I Used to Be a Lawyer for the IRS. Here Are the 7 Big Ways Regular People Get in Trouble on Their Taxes.”
If you haven’t read it yet, here’s the link.
The writer walks you through common ways that people get in trouble with their taxes, such as ignoring IRS letters and not filing on time, and tells you what to do to avoid them.
At U-Nique, we have always helped our clients avoid many of the tax issues described in this blog.
Are you making any of the 7 mentioned tax mistakes?
In today’s blog, we’ll walk you through how we protect our clients from the 7 highlighted tax issues, and what you should expect from any experienced accountant too.
Starting with issue #1…
1. Ignoring official letters from the government
We understand that you may forget to respond to IRS letters due to your busy schedule. As part of our client onboarding process, we have all clients sign a POA that enables us to receive IRS communications so that we are aware of any situation and can communicate with the IRS to resolve it, allowing you to stay focused on running your business.
2. Not filing returns when they are required
Many taxpayers don’t use an accounting firm and fail to report taxes, often filing multiple years all at the same time to catch up.
While we don’t do anything really different here compared to many other firms, we make sure are clients are filed on time.
3. Not designating what tax you are paying
Many accounting firms are very hands-off. They prepare your taxes, send you copies of the return and payment vouchers, but don’t help ensure that it is paid correctly. Most taxpayers still write checks, which leaves them open to fraud and requires them to write a bunch of information down on the check to direct the IRS on how to properly apply the payment, which can still be misapplied even when the taxpayer has done everything correctly.
At U-Nique, we provide our clients with three different ways that payments can be made and focus on electronic methods where we have yet to see a client’s payment get misapplied. We also have POAs for all our clients, allowing us to monitor and review your tax transcripts to verify that all taxes are applied correctly ahead of time instead of after the fact.
4. Not paying your employee’s trust-fund taxes
This is a big one and can be easily avoided. Use a payroll program like Gusto. Every payroll, the employee and employer payroll taxes are withdrawn from your business bank account and remitted to the taxing authorities on your behalf.
And, we get it. Sometimes cash flow is tough and you would rather have that money in your account and transmit it later. But this leaves you open to missing payments and getting in trouble, which opens you to big penalties and interest fees later on.
5. Playing fast and loose with the facts
(Plus, 7. Not keeping good records)
For businesses, having sloppy accounting records and poor or no documentation is a con, not a pro. Not being able to prove the stability/accuracy of your accounting doesn’t help give you negotiating room with the IRS, it does the opposite.
This is why we employ digitized bookkeeping automation with our clients. While it is great for keeping the accounting efficient and accurate, it also ensures a higher rate and cleaner storage of documentation, making it fast and efficient to provide clean, easy-to-follow records and documentation during an IRS audit.
On the personal side, some taxpayers are good in this department, while others are not. At U-Nique, we follow a more buttoned-up approach to ensure compliance and accurate reporting through the use of a tax organizer and documentation requests for all sources of income and deductions.
Clients who follow our process have had “no change” audits to their tax years, and we hope to keep that clean record going forward every year.
6. Failing to report foreign bank accounts and income
While we include this question with our tax organizer for all clients, it is really up to you to make sure you recognize and report this, if applicable.
For the majority of taxpayers, this is an easy “Not Applicable” and not an issue. However, the IRS has been targeting taxpayers to ensure compliance in this area for a while now, and the penalties can be rather severe.
Are You Making Any Of These Common Tax Mistakes?
At U-Nique Accounting, we’ve been helping business owners stay compliant with the IRS and avoid any major tax issues for years now.
Not to mention helping our clients save as much tax as legally possible on their taxes each year.
If you want an experienced eye to take a look at your business tax strategy, and help correct any errors we’ve mentioned in this blog, we’re always here to help.
You can book a call with one of our experienced accountants anytime by using our calendar below.
Until next time!