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business tax myths

Business Tax Myths to Watch Out For

March 01, 2016

The IRS keeps a close watch on business tax returns. In 2015, the tax agency examined early 62,000 business returns, a slight increase from 2014. Typically, those with income and larger businesses have greater chances of being examined.

Unintentional errors or simple oversights can be dangerous for businesses. A single error can call into scrutiny not only your tax information for 2015 but possibly from previous years. To help businesses file accurately, The National Association of Enrolled Agents (NAEA) has compiled a list of business tax myths to watch out for. Forbes shares:

Meals and Entertainment: Yes, a nice perk of being a business owner is that you can deduct some of your fun. Yet you need to be diligent. Let’s face it, the IRS can get very suspicious when you rack up lots of tax breaks for meals and entertainment. Hey, this is part of the reason that the deduction is limited to 50%.

But you also need to make sure you keep an ongoing log of these types of expenditures, such as recording the location for the meal and entertainment; who you met with; and the business purpose.

Cash: Getting paid in so-called Benjamins does not mean you are exempt from reporting the income. Now, it’s true that it may seem to be difficult for the IRS to track this down. But in an audit, the agency will likely be alerted if you have large amounts of money or assets – without any idea of the source.

Filing a Joint Return: The perception is that this is always the best way to go. But as with anything about the tax code, there are exceptions. So you should still run the numbers for a return that is filed separately.

Besides, it may make sense to file this way even if you do not save money on taxes. How? Keep in mind that a separate return can help with liability from your spouse, such as if you suspect tax evasion or there are unpaid debts (like child support or school loans).

Tax Deadline: April 15th is usually the day. But this year it’s different. The tax deadline is actually April 18th (this is because the District of Columbia celebrates Emancipation Day). But of course, it’s usually a good idea to not wait until the last minute when preparing your return anyway.

Filing An Extension: There’s definitely nothing wrong with doing this. After all, you may need more time to fill out your 1040, or perhaps you have yet to receive some documents (such as K-1’s). Thus, to get an extension, you can simply fill out Form 4868.

But this only means you can wait until October 15th to file your 1040. However, you still must pay the taxes you owe. This never changes as the federal tax is based on a pay-as-you-go system. For business owners, this often means having to make estimated tax payments. And if you fail to do so, you will be subject to penalties and interest from the IRS.
So to do estimated taxes, you can get the help of a tax pro or use an online provider like Intuit’s TurboTax.