The first day of spring is around the corner, which means if you are an individual, a sole proprietor, partnership or a limited liability company, the tax-filing deadline is short time away.
Many find that filing business taxes is difficult and time consuming, often you do not have the right forms, and you are rushing around atthe last minute trying to find the right receipts. If you are a sole proprietor,you will need to complete the long Form 1040, in addition to Schedule C and Schedule SE. If you forget about income and earnings, you will leave yourself exposed to an audit by the Internal Revenue Service (IRS).
Below are some common mistakes made by sole proprietors like you!
No. 1. Forgetting to Set Aside Payments for Quarterly Taxes
For sole proprietors, tax time happens more than one time each year, it happens quarterly. As a business owner, you are obligated to pay estimated taxes every three months. If you are new to business or make under acertain amount, do not worry you are not required to pay these taxes for the first year. If you are a sole proprietor, you want to make sure you pay these estimated taxes to sidestep an IRS penalty and tax surprises in April.
Often sole proprietors choose to reserve a percentage of each payment they receive. When it is time to make a payment every few months you can make a good estimate on how you owe the IRS.
No. 2. Refusing to Ask a Professional
If you choose to estimate your taxes on your own, you may run into trouble. The best way to dodge surprises and penalties is meet with a tax resolution professional.
No. 3. Under Reporting on Income Taxes
Are you under reporting your business income? If you are a sole proprietor and have made more than $600 so far this year, the company that hired you should send you a 1099-MISC reporting your compensation. The IRS will receive this form as well, so they will know if you have failed to report your earnings.
It has been suggested that sole proprietors under report business income by approximately $70 billion. Make sure you do not make the same mistake.
No. 4. Failing to Report All Your Expenses
From your business’s beginning, there are a number or tax-deductible business expenses that should be on your radar. Some of these expenses include cell phones, travel expenses, and equipment. Do not forget to keep up with these expenses so thinks are not complicated for you when it’s time to pay taxes.
No. 5. Postponed Back-Tax Payments
If you owe money to the IRS, it is in your best interest to seek the help of a tax resolution lawyer. Postponing payments on your back taxes only furthers your debt and it affects the overall success of your business interactions. The tax resolution attorneys like those at Federal Tax Management Inc. can help you resolve your debt with a payment plan that best suits your individual needs.
No. 6. Choosing the Incorrect Legal Entity
Certain factors like tax bracket and the sum of self-employment taxes may be contributing to loss of income for sole proprietors. Actually, many sole proprietors may be paying more in taxes than some owners of corporations may. Changing your tax structure may help you save money.