As a business owner, managing taxes can sometimes feel overwhelming. For decades, our Annapolis, MD tax lawyer has helped many clients who face a variety of tax issues, and while every situation is unique, there are some common challenges that businesses regularly encounter. Recognizing these challenges early can help avoid potential penalties, disputes, and financial setbacks.
Misclassifying Employees
One of the most common tax mistakes we see is businesses misclassifying employees as independent contractors. This issue can lead to significant problems, including back taxes, penalties, and interest. The IRS has strict guidelines for determining whether a worker is an employee or an independent contractor, and misclassifying workers can result in fines or the need to pay employment taxes retroactively.
We often advise our clients to review their relationships with workers regularly to verify classification. The distinction between an employee and a contractor may seem subtle at times, but it’s vital to get it right. Misclassification can also lead to other issues such as worker’s compensation claims, so it’s important to seek guidance from our tax attorney if you have any doubts.
Failing To Keep Proper Records
Another issue that businesses often run into is failing to keep adequate financial records. Accurate records are essential not only for preparing tax returns but also for staying compliant with various tax laws. We frequently see businesses that struggle during audits because their financial documentation is incomplete or disorganized.
Maintaining detailed and accurate records throughout the year is one of the simplest yet most important practices to avoid tax issues. This includes everything from receipts and invoices to bank statements and payroll records. Keeping your records in order will make it easier to file taxes, respond to any questions from the IRS, and protect your business from unnecessary tax audits.
Overlooking Deductions And Credits
Businesses may overlook available deductions and credits, leaving money on the table and paying more than necessary in taxes. Some deductions, such as business expenses for travel, office supplies, or equipment, are often missed simply because business owners are unaware they qualify for them. In other cases, clients are hesitant to claim deductions for fear of triggering an IRS audit.
We work closely with our clients to help them identify and take advantage of all the deductions they’re eligible for. The tax code offers a variety of opportunities to reduce tax liability, and we help confirm that these are properly applied. However, it’s important to be aware of what is truly deductible. Incorrectly claiming a deduction can lead to penalties, so we always advise our clients to carefully review their filings and consult our veteran-owned tax law firm when in doubt.
Tax Issues Related To Business Structure
The structure of your business can have a significant impact on your taxes. Many new business owners start as sole proprietors or limited liability companies (LLCs), only to later realize that their business structure may not offer the best tax advantages. For instance, LLCs or S-corporations can provide tax savings through pass-through taxation, but failing to choose the right structure can lead to higher taxes and missed opportunities.
At our firm, we help clients determine the most appropriate business structure for their needs and advise on how to make changes if necessary. It’s important to periodically evaluate your business structure, especially as your business grows and evolves. The right structure can reduce tax liability, protect your personal assets, and help with long-term planning.
Dealing With IRS Audits
Though no business owner wants to face an IRS tax audit, it’s an issue that many will encounter at some point. Whether due to random selection or discrepancies in your filing, audits can be stressful and time-consuming. If you’re selected for an audit, it’s important to have the right guidance to protect your business interests.
We assist clients throughout the audit process, so that they provide the necessary documentation and respond to IRS inquiries appropriately. We’ve found that audits are much easier to handle when businesses have well-organized records and have followed best practices when it comes to their tax filings. If you’re facing an audit, we recommend working closely with our tax attorney for the best chance of a smooth resolution.
Staying Ahead Of Business Tax Pitfalls
At Crepeau Mourges, we understand that tax issues can be a significant source of stress for business owners. The best way to avoid common business tax issues is through proactive planning and careful attention to detail. By staying organized, meeting deadlines, and seeking professional advice, you can avoid costly mistakes and stay compliant with tax laws. If you’re facing any of these challenges or want to make sure that your business is on the right track, don’t hesitate to reach out to us. With experience working as tax lawyers and as CPAs, our attorneys are here to help protect you and your business. Get started by scheduling a free case review. Call now or visit our website for immediate assistance.
