Adjust Your Accounting to Stay Compliant

Welcome to “Small Business Tax Laws: How to Adjust Your Accounting to Stay Compliant”

Taxes—a bill that emerges at the end of every fiscal year—rank as the second-most important concern for US small businesses.

This article explains how taxes affect your business and includes 15 ways for a less stressful tax season.

Tax Compliance: What Is It?

Anyone who has experienced IRS problems, a tax return denial, or an audit can attest to the crucial significance of tax compliance.

Generally, adhering to tax rules and regulations set forth by governmental agents and other taxing authorities on a state, federal, and international level entails knowledge of and observance of these laws. The yearly tax return filing date in April serves as a simple illustration of this. Those who don’t complete their tax returns by this deadline are considered noncompliant.

These noncompliant businesses run the risk of forfeiting their tax return and incurring fines or penalties.

While personal tax filing is governed by one set of laws and regulations, businesses must align their accounting, reporting, and tax filing procedures with a distinct set of rules and laws.

Business companies must pay the following fees in addition to income tax; the Balance noted:

Sales tax is charged on the goods and services they offer in some states.

Property taxes on their assets that are real estate taxes on administration, such as excise taxes.

Payroll and employment taxes taxes on franchises or gross receipts (in certain states)

Taxes on dividends paid to shareholders by the corporation.

Stay Tax Compliant with These Tips

Any business’s financial management must include tax compliance since it gives owners a clear picture of their financial situation. Penalties for not paying your taxes on time might be very high. These may include a warning or severe fines.

Here are some easy ways to make sure your company complies with tax laws.

Identify your problems before the auditors do.

Before receiving a warning from the state, perform a pre-audit or reverse audit to identify and fix any mistakes you may have made. While you could assign this duty to a member of your team, hiring a consultant has the benefit of bringing in a different set of eyes. Either way, detecting and fixing your own mistakes is worthwhile and can result in more minor penalties in the future.

Give auditors only the information they request.

If the auditor requests it, you are required by law to provide them with specific information. So simply hand it to them. Make sure your records are simple for them to evaluate, and don’t withhold them or put unnecessary delays in place.

Don’t give the impression that you are holding anything back. This forces auditors to go further and put in more effort in search of potential anomalies or errors.

On the other hand, avoid sharing excessively. Don’t give them records they didn’t request; doing so will only make things more complex and increase the likelihood of misunderstandings.

Observe these two guidelines: Do not place anyone in the same room as an auditor, and request that all information requests be made in writing—both aid in reducing misunderstandings that can prompt the auditor to probe a little more.

Make a thorough tax strategy.

Every company’s main goal is to make more money. Using a tax plan gives you a method to do this. It covers topics like how your business structure affects payroll and deductible expenses. By maximizing deductions, switching to a lower tax rate, and boosting your tax credits, your tax strategy helps you reduce taxes.

Check any exemption certificates.

The management and storage of tax exemption certificates is a management nightmare for any business that sells a variety of goods and services in several states. Even though the sale was to a tax-exempt organization, a corporation may be liable for the sales tax that was not collected if the tax exemption certificate is invalid, out-of-date, or missing. You can also face penalties and costs in addition to the overdue taxes.

One exemption certificate is all it takes to put you on the hook for several.

Cut back on manual processes.

Relying solely on manual procedures and institutional knowledge frequently results in mistakes, especially if there is a high personnel turnover rate. That may be expensive: According to Wakefield Research, an audit typically costs more than $300,000 to complete.

Automating your compliance procedures can help you avoid unfavorable audit filings and reduce the tedious work associated with managing sales and use taxes. Automated solutions also increase efficiency by assessing, computing, and collecting sales and using tax when invoices are initially handled.

Keep up with Tax Changes

Every year, a business owner must be aware of tax changes. Changes to the tax code and small business owner exemptions and deductions may be among them. By being informed of tax law changes, you can ensure your return is prepared correctly and that you’re claiming all applicable deductions. For instance, the Instant Business Asset Write-Off was extended this year through 2023.

Always maintain consistency.

Auditors have a motive to look into inconsistent accounting procedures further. They’ll be curious as to why you used one workflow for one set of transactions to determine tax compliance but a different workflow for another.

These contradictions might appear for the most innocent of motives. Perhaps you hired a temporary employee who employed a slightly different accounting technique because your accounting manager was absent for a few months. Or maybe you’ve switched to a new e-commerce platform or accounting program that produced various reports.

It pays to carry out your own internal audit if one of these situations occurs.

Analyze the Deductions for Working from Home

Due to the growing pandemic, many of us are doing our jobs from home. Learn about the three options before claiming any work-from-home expenses:

The US deductions for home are the simplified method which is $5 per square foot of your home office (no more than and sq ft) and the direct method where you apply a percentage to your cost based on the size of your home office to the size of your entire home.

Check out this link on Turbo Tax about “How do you calculate the home office deduction as a self-employed person?” section for more information.

Emphasis on Use Tax

One of the most expensive compliance blunders businesses makes involves using tax management. According to state auditors, they pose the most significant audit risk, and the majority of assessments stem from unpaid use tax.

The Use Tax regulations for some industries, such as manufacturing, construction, and hospitality, are more complicated and vary from state to state, posing even more significant hazards.

In business, how you “consume” particular things often makes a difference. among others, common triggers include:

Inventory transfers

Advertising gifts (which can consist of free samples to customers) charity contributions

Purchases of fixed assets where the vendor did not collect tax

Inventory withdrawal for in-house research and development (in certain states)

You probably need to pay use tax if you didn’t pay sales tax when you bought these things, which were meant for resale. You might be responsible for paying the additional use tax if you purchased office supplies or furniture and afterward moved, where the tax rate was higher.

The majority of auditors’ time is spent in this area. It would help if you also got advice from this area.

Set a payment priority plan.

Money has never been tighter due to the growing cost of living. You’ll be well-positioned for a lucrative 2023 if you can find strategies to lower your tax burden, earn a refund, utilize government help, and postpone loan payments.

Choosing whether to put off mandatory payments might be difficult. If you are having trouble making payments, think about utilizing government aid (i.e., low-interest loans).

Final Thoughts

Taxes are not only one of the most significant payments but also one of the highest corporate expenses. Small business owners file their taxes incorrectly, incompletely, or late risk fines or criminal prosecution in the worst situations.

Want to ensure your business stays tax compliant? Reach out to Speed Financial Group today. We are constantly updating our client tax strategies to keep pace with the newest changes to tax laws. Our clients are always compliant with the tax laws in their state. We also ensure they stay prepared to take advantage of all credits and laws that can boost revenue and lower liability. Contact us today to get your business finances on the compliant track!

Have questions about “Small Business Tax Laws: How to Adjust Your Accounting to Stay Compliant”? Leave a comment below.

Also read “How to Take Advantage of the Employee Retention Tax Credit“