Small business owners face tax challenges far more often than they know. While most only realize issues during tax season, their problems are the product of difficulties, unattended responsibilities or mistakes made throughout the entire year. In addition, the issues they perceive aren’t the root cause.
As a result, they wind up suffering from the same issues time and time again.
It’s likely you have a number of issues beyond taxes to focus on. So in the interest of prioritizing the challenges you may be facing, here are the four struggles you need to conquer now.
- Correctly Estimating Your Revenues
Some business owners purposefully underreport their income. This isn’t a challenge, though; it’s simply illegal and a giant risk. Some small business owners, however, are inadvertently underestimating their revenues and overstating their expenses.
According to Donald Marron, a contributor to Forbes, these owners wind up underreporting their taxes “because they often deal in cash and engage in transactions that are not reported to the IRS.”
As Marron mentions, the difficulty small business owners have in complying with the complex tax laws makes these kinds of mistakes more likely. Without the expertise or time to review the ever-changing tax code, you need help from someone who does to avoid costly tax penalties. - Having Documentation To Deduct Expenses
Small businesses can make quite a few deductions to pad their profits. Of course, you need to know which deductions you’re eligible for, which is a challenge on its own (though easily solved by working with an experienced small business tax advisor).
The real challenge is being diligent to track your deductible expenses, hang onto your receipts and actually benefit from your potential tax savings. If you have no proof of your expenses, the IRS is not going to award you any tax breaks.
Similarly, you must be careful not to use personal funds to pay for business expenses. If you do, you must reimburse yourself through your business, which is a time-consuming task. - It’s an issue we’ve discussed several times, and for good reason. Misclassifying your workers is both common and risky.
Many owners incorrectly assume that if someone is performing labor for their business they should be paid as an employee. But if someone is on your payroll, you are required to pay payroll taxes on their behalf and may be taxed 10% more than you should. Independent contractors, however, are technically services provided by an outside party and require you to file a 1099 form.
It always helps to have someone with expertise in this area, but you may also be able to determine how to classify your workers by evaluating how much control you have over their work. If you’re providing the resources they need to do their jobs and giving them plenty of direction, they’re more than likely an employee. - Managing The Affordable Care Act
Last, and certainly not least, is the Affordable Care Act. No bill in recent history has introduced more complexities and challenges to small business owners than the ACA. Even some tax accountants have struggled to completely understand how to navigate the ACA.
If you already offered benefits to your employees, the ACA may not impact your payroll and accounting processes much. But if you’re like many small business owners, there are plenty of discussions you should have with a small business advisor.
Whether you’re facing one or all of these tax challenges, they can’t be left for another day. They are needs you must address now. If you need help to overcome or manage these challenges, work with your partner as soon as possible to prevent them from hurting your company and its bottom line.