Orange Doesn’t Look Good On You…
5 Mistakes to Avoid if Orange isn’t Your Color!
We understand running a business can take up most of your time... but in the midst of your chaotic work schedule, don’t forget to remember these 5 mistakes so you don't end up on the wrong side of things!
1. Underestimating / Underreporting
Nobody wants to find themselves in a situation where they owe a significant amount in taxes.
We get it.
It's a burden that can cause stress and tons of financial strain. However, it's important to understand that taking shortcuts to save money in the present can have severe consequences in the future.
While it may be tempting to manipulate your tax returns or hide income to reduce your tax liability, such actions can lead to serious legal actions. The short-term gain of saving money on taxes fails in comparison to the potential long-term consequences of facing jail time and the financial/ personal hardships that come with it.
This year, ensure a secure and stable future, free from the looming threat of jail fines and legal troubles.
Consequences for mistakes with taxes include audits, fines of up to $250,000, and up to five years in prison. Careless errors may lead to a 20% penalty, while tax fraud can result in a civil penalty of up to 75%.
2. Not separating personal/business expenses
Without a bookkeeper, it becomes extremely challenging to differentiate between personal and business expenses. This lack of clarity can prove to be very harmful to your business operations. Not only does it lead to potential financial mismanagement, but it also raises concerns with the Internal Revenue Service.
Tracking and categorizing expenses can be hard, making it unclear whether they are personal or business-related. Combining these can lead to incorrect records, makes it difficult to gauge financial health, and complicates determining profitability details.
There are several possible consequences. Less legal protection, incorrect deductions leading to additional fees and penalties, denial of business losses, and an increased likelihood of being audited.
3. Not filing a tax return if you earned more than the standard deduction
Not filing a tax return because you don’t want to owe taxes is one of the easiest ways to get yourself in that orange outfit!- As years go on without filing, the consequences get even more serious. This practice is highly discouraged and can have severe consequences for individuals who take part in it.
If you file your return more than 60 days late in 2023, the IRS will charge you a minimum penalty of $450. The amount you owe will keep increasing with interest until you completely pay off your balance.
4. Not recording business mileage
Without recording your business mileage properly, the IRS can therefore deny the deductions.
Here's how to record it correctly:
you must keep records for business tax reporting
separate business and personal miles for calculating deductions.
must include the date, miles driven, and business purpose
Consequences: If you don’t have documentation proving the mileage, the IRS can make you pay penalties and fines for those.
5. Taking tax deductions and credits that you shouldn't
When it comes to filing your taxes, honesty should be a priority. It's important to accurately report your income, deductions, and credits.
However, there may be an instance where you mistakenly receive money or credits that were not intended for you or do not apply to your situation. In this situation, it might be tempting to turn a blind eye and not report these, but failing to report can have serious consequences that far outweigh any temporary financial gain.
Consequences: criminal prosecution, tax evasion, fraud and false statements, identity theft, and willful failure to provide accurate information.
All of these mistakes can cost you big time… But we won't let that happen!
At Cornerstone Accounting Solutions, we do regular bookkeeping to keep personal and business expenses separate. We are here to give tax tips, helping you save for your future in both your business and personal life.
Schedule a consultation today, we would love to chat with you!
