Last Updated on Feb 18, 2020 by James W
Tax, hell! It is inarguably the most difficult thing to understand. Like any other entrepreneur, you are bound to mull over why on earth you have to pay the government to work hard and earn money. There are so many beautiful things on earth to think about but as fate would have it, you need to think about the taxes you have to pay. Once February starts encroaching, you have the strange feeling that you are not at all prepare for the doomsday, I mean the last day for submitting tax file. But denying this obvious truth is no longer an option. If you keep avoiding it like plague, your financial condition might come under severe stress. So, if you do not wish to court trouble for your small business, check out for the following tax mistakes that can cost your small business dearly:
Accept It you cannot Do It: This is a common problem with all the small business owners. They all believe that they can do it themselves but this is exactly where problems creep in. You may have the basic idea of what taxation is but I am extremely sorry to say you simply do not have the tax knowledge to stay out of problem. Sometimes, they use some software as a makeshift but believe me, when you are into trouble, it will not help you in one way or the other. Rather than messing up with the legalities of tax, you should better concentrate on the growth of your business.
Please Keep a tax Diary: Most small business owners hate the idea of carrying a fat and ugly diary all the time to keep all the data of expenses you have incurred throughout the year. I know the very idea is boring but it will reinforce your statement when you are to show all the expenses related to travel, entertainment etc. Obviously, you have the receipts and therefore, you may argue that you do not need to keep track of all the expenses in a diary. But believe me, it will give you confidence and eliminate unnecessary delay in the process.
Do Not Get Crazy with refunds: Some business owners go crazy when they see they got a refund from the income tax department. Congrats, you have got money. But wait, how long has the money been in the govt’s custody? Probably 3 or 6 months and that simply means, you have willingly given up 3 months (approx) interest free money to Govt. So, your ultimate objective should be to get as little money in refund from the Income tax department.
I can make everyone Independent Contractor: Hiring an employee is not a great option in this tough economic scenario. If you share the same feeling, think twice. Hiring independent contractors may be a great idea but when you are designating someone as an independent contractor, it means he/she has the control over where to work, when to work and how many hours to work. If you are treating the so-called independent otherwise, you are just courting trouble. You may be charged for misleading the tax department by incorrectly designating employees of your organizations as independent contractors.
I am the Owner and I own everything: Not really. You cannot drastically increase your salary from $1200,000 to $3400,000 in a year if your company is incorporated. You need to layout proper reason for such drastic increase in your pay slip otherwise; Income tax department can disallow a certain percentage of the money by terming it as “unreasonable compensation???.
I have faithful people around: This is another common perception shared by almost all the business owners. It is customary to recruit two persons – one who will write the checks and one who will be doing the account and make sure they are not hobnobbing with each other. Do not be another victim of embezzlers. Even if your finances are looked over by someone trusted, you need to make sure that there is another person involved who will be checking the data to locate incongruities.
You must be Joking, That can’t be Deductible: Nope I am not in such mood these days. Jokes apart, some trivial things like expenses over dinner at a business meeting, watching a movie or dry cleaning a suit to attend an important event can also be considered as deductable. So, do not be shy. Just make sure it is well documented.
Michael Evans is a passionate bloggers and he has written different articles on Cyprus Company Formation.