Top Five Tax Pitfalls that can Affect Small Businesses

The US tax code is famously complex. And with frequently changing local and state taxes added into the mix as well as sales tax collection and reporting obligations, it takes focus and determination – and frequently professional help – for small businesses to fully comply.

When tax time for individual filers rolls around, media coverage of issues that affect wage earners and small businesses owners typically increase to take advantage of the fact that taxes are top of mind.

But the fact is, tax scams and other pitfalls abound all year long. Here are five tax issues that can affect small businesses at any time:

  1. Inaccurate buyer information: Sometimes buyers falsely claim to represent a tax exempt organization. Small business owners should not take the buyer’s word for it since failure to collect applicable taxes could result in the business owner being liable later – with penalties and interest. The best way to handle this situation is to request a certificate from buyers who claim to be eligible for sales tax exemption.
  1. Tax suppression software: This is a growing scam whereby some businesses use software that suppresses income on a random basis to avoid taxes. The level of sophistication of this type of software has increased significantly over the years. But businesses tempted to use such a scheme should know that taxing authorities can cross-reference data, raising red flags that trigger investigations. Companies that are looking for ways to evade paying legitimate taxes are asking for trouble.
  1. Inflated refund requests: Another major pitfall for small businesses are refund requests that contain undocumented claims and exemptions. The taxing authority may request documentation at a later date, and if the company can’t produce evidence that the business is eligible for the refund or exemption received, the business owner will be liable for taxes, penalties and interest.
  1. Unreliable tax advisors: When small business owners choose a tax advisor, they are putting their trust in that individual or company – and their money is on the line. A tax advisor who provides faulty information may cause the business owner to underpay, triggering major liabilities down the road. It’s best to choose an advisor with verifiable experience and state certifications.
  1. Identity theft: Consumer identity theft is frequently in the news, and consumers receive a lot of advice about how to avoid identity theft and deal with tax scams, but small businesses are vulnerable as well. Small business owners typically don’t find out about an identity theft tax scam until they attempt to file a return and discover that one has already been fraudulently submitted on their behalf. It’s a growing problem that can take months or even years to resolve.

Tax time isn’t a once-a-year event for small businesses. While the scams and pitfalls associated with taxes typically receive more attention in March and April, small business owners need to remain vigilant throughout the year. Being aware of these five tax pitfalls can help you make sure your business operates in compliance year round.[su_box title=”About Jonathan Barsade” style=”noise” box_color=”#336588″]1048238198Jonathan Barsade is the Founder and CEO of Exactor Inc, the next-generation provider of a fully automated, end-to-end compliance solution for secure, safe, and accurate sales tax record keeping and filing. Mr. Barsade has nearly thirty years of experience as both an entrepreneur and an attorney. During the 1990’s Mr. Barsade was with Akin, Gump, Strauss, Hauer & Feld, one of the top six law firms in the country, and helped to form and establish their technology practice group. In late 1998, Mr. Barsade helped create Great Domains, Inc., where he played an instrumental role in creating the infrastructure for the first and most successful domain name brokerage environment. GreatDomains was acquired by VeriSign. After GreatDomains, Mr. Barsade was the founder and CEO of FPBA Group, LLC, the developers of the COMMFLASH technology, the pioneer of full page advertisements in the burgeoning Internet.[/su_box]

ISBuzz Staff
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