Staying one step ahead of the IRS isn't easy for most small businesses. One wrong step—a forgotten form, a lost receipt—could invite Uncle Sam's wrath.
With a new year approaching, now's a good time to plan ahead so you can avoid bumping heads with the IRS. Here are four tips to remember year-round:
1. Hit your paperwork deadlines. The best way to keep the IRS at bay is to file your forms, payments and other paperwork on time. That way, you don't draw unneeded attention to yourself. Keep a copy of our 2004 Tax Calendar to remind you of the deadlines. (See pages 4 and 5.)
2. Develop good tax habits and stick to them. Start the year right by keeping scrupulous records with a daily tax diary and a filing system to keep receipts, canceled checks and other items.
Make your system as simple as possible. Use a separate credit card for all business expenses. Remember that an IRS audit would likely take place more than a year after you file your tax return. So make sure your records are detailed enough to prove what you'll forget.
3. Don't rely too heavily on outsiders. Some business owners delegate all tax responsibilities to accountants or other professionals. This is a mistake for several reasons.
First, an accountant can work only with the documentation you provide. Don't pay steep hourly rates for your CPA to wade through a pile of receipts. Second, many tax professionals don't adequately keep up with new tax law changes, IRS regulations and creative new tax strategies (such as the strategies cited in this newsletter!).
4. Don't play the blame game. If your accountant or payroll processor makes a mistake, you're usually liable for the taxes and resulting penalties. The IRS and courts typically say that
That's one reason you should mail tax returns and other tax documents to the IRS yourself.