Many business owners inadvertently make mistakes when attempting to file their taxes. These mistakes can be quite costly and may negatively affect a business’s future. Keep the following information in mind to make sure you’re on the right side of the law this tax season.
Improper Record-Keeping Throughout the Year
Several businesses make the mistake of failing to keep accurate and thorough records during the rest of the year. For example, it isn’t uncommon for business owners to consider “tax prep” to be compiling all the receipts from the past year. While this may work for small companies, this method is a disorganized and inefficient way of keeping records.
Businesses that have trouble with record-keeping should start using software and apps to automate this process. By making a consistent and dedicated effort to compile and your records with these tools, you’ll have an easier time drafting their business records.
Inaccurately Calculating Sales Tax
Another major mistake that many companies make is the failure to accurately calculating their sales tax. Though most companies understand the importance of adding the sales tax in their own state, many fail to take into account the fact that other states have their own sales tax that may differ from a business’s home state. The sales tax nexus determines that out-of-state businesses are responsible for the collection and remittance of sales tax for all transactions. Though this concept is a bit complicated, companies will be held responsible for this when tax time arrives.
Any company that has employees that are residents in other states or a physical office located in a different part of the country should take this sales tax nexus into consideration. Other activities that fall under this sales tax law are sales reps that travel to other states where they aren’t allowed to solicit sales, employees that exhibit at trade shows, technicians that travel to other states where they aren’t legally based to perform calls, maintaining inventory for a warehouse, or similar activities.
Failure to Acknowledge the Wayfair Precedent
Though many companies may still express confusion surrounding sales tax, the Wayfair Sales Tax case made the legal ramifications much clearer. During the case, the Supreme Court ruled that states are legally allowed to compel these out-of-state businesses to remit and collect the state’s sales tax even without a physical presence in the state. Thus, a precedent for the economic nexus was set.
Businesses that want to avoid making mistakes with sales tax when filing their taxes should consider sales tax outsourcing. By outsourcing this portion of your taxes, you’ll be able to rely on the experience and knowledge of experts that are well versed in the laws regarding sales tax. This way, businesses don’t take on the liability that comes with improperly reporting their sales tax.
Conflating Personal and Business Expenses
Muddying the waters between personal and business expenses is another red flag when it comes to business’ financials. When tax time comes, businesses with conjoined accounts or messy records may make serious mistakes when filing their taxes. Business owners can protect themselves by separating their credit and bank accounts, paying themselves a salary, and keeping their personal and business receipts separate. This way, the company’s financial records will be easier to report during tax season.
Make sure you file your business taxes properly this season. As April 15th approaches, be sure to keep this guide in mind.
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