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Do Not Be a Victim of April Fools! The Single Most Costly Tax Mistakes
Published on Apr 2, 2013
Read 'Do Not Be a Victim of April Fools! The Single Most Costly Tax Mistakes' at 'Time to Start Up,' the small business blog by BizFilings.
Yesterday was April Fools’ Day and the tax clock is ticking – are your business’ taxes in order?
If you find that paying taxes is an overwhelming and confusing process, you’re not alone. Requirements vary from one state to another – incorporating in California, for example, means you’ll face different regulations than you would incorporating in say, Pennsylvania. Also, depending on the type of incorporation you’ve selected for your business – whether it’s an S corporation, C corporation or LLC – tax requirements will differ.
For new entrepreneurs, small business incorporation means that if you aren’t already familiar with tax laws, now’s the time to dive in and learn about the requirements relevant to your business. This will make for easier tax planning down the road, and prevent you from falling for any April Fools mistakes this time of year. Here are some guidelines to help prevent any costly tax blunders that can be easily avoided:
Employee W-2 forms must be filed with the Social Security Administration (SSA) by the end of February. If you’re filing electronically, the deadline is a bit later (this year it’s April 1, 2013, but subject to change each year). If you fail to prepare W-2 forms for your employees, you will be subject to a penalty for each statement that should have been sent. As a tip – try and have these filed in January so employees can get their personal taxes in order. Not only are you doing your employees a favor, but you’re also keeping your business in check.
Be mindful of double-taxation. As mentioned above, C corporations and S corporations are not taxed exactly the same. Double-taxation can sometimes be a disadvantage for C corporations, although it shouldn’t be a deal breaker when it comes to incorporation of a business. However, C corporations should know that if the company is profitable but does not pay dividends to shareholders for an extended period of time, the IRS might believe that some of the salaries paid to owners are dividends in disguise. The IRS can then dismiss some of the salary deductions, resulting in a large tax bill plus interest and penalties.
Starting a business and registering a company comes with several expenses – incorporation fees, employee salaries, etc. – so it’s no surprise that business owners will look for tax deduction opportunities. However, it’s important to remember that too many tax breaks could result in your corporation paying an Alternative Minimum Tax (AMT). Most small corporations can avoid being hit with an AMT, but thoroughly evaluate the deductions you take.
Maybe it goes without saying, but throughout this whole process it’s important to be diligent about filing on time, as late penalties are an avoidable headache. Although paying taxes isn’t something to get excited about, they are necessary to keep society running as they fund the programs that keep our communities safe and succuessful, which ultimately results in stronger revenue for small businesses. The best we can do is get through the season and not fall victim to any tax tricks.