The reasons for not filing an income tax return varies from case to case. But when it comes to cash based business owners there are a number of challenges that are unique. Read on to learn why some business owners do not file taxes and what you should do instead.
Don’t know how much they made, really.
Some business owners do not file a tax return because they do not know how much money they made. In business it is important to keep an account of sales. This is easier to do for companies that accept credit payments that post to a bank account. But when companies operate on a cash basis with infrequent bank deposits, this can be a hindrance for tracking sales. Instead, cash based business owners often rely on estimates to compute income. A simple way to monitor revenues is to issue invoices and receipts for every sale. And if you’re too busy to add them up, hire a secretary or bookkeeper to calculate the totals for you.
Haven’t kept good receipts of expenses
Expenses help to lower taxable income which result in fewer taxes but failing to keep good records causes missed deductions. As a result, those who do not track expenses often give up when it comes to reducing taxes. To improve expense tracking in a cash based business, use a business debit card or write checks for purchases and keep every receipt. The bank statements will provide expense amounts which help lower taxable income.
Think of tax preparation as an option
Filing taxes is a requirement, not a choice. Report taxable income from business along with estimated tax payments that you make during the year. Failure to file can be costly so it is important to get returns in on time to stay in compliance with tax filing. If you need assistance with preparing a return contact an accountant or tax professional.
Expecting to pay taxes
Many people have run their business for years and managed to stay under the tax filing radar. So the sheer thought of filing taxes at this point makes them hesitant. While it is true that a late filing penalty applies for returns submitted after the tax due date, the expectation of owing taxes may not apply to you. The only real way to find out is to have your return prepared.
You can reduce the odds of owing and pay fewer taxes with good record-keeping and tax reduction strategies. To learn more about lowering taxes on business income visit www.tbsusa.com and download my free audio, “Tax Strategies for the Self-Employed.”