From claiming deductions, to claiming tax credits, everybody knows there’s an abundance of ways you can save when it comes to your small business’ taxes – and if you don’t know them personally, you can always find an accountant who does.
But what about the other obvious, frankly stupid methods small businesses still use to “save” on their taxes?
Straight up, the next five tax saving methods are illegal, immoral, and highly unrecommended. And yet, thousands of business owners still lie on their tax returns every year, even though it’s so plainly a bad idea – not to mention easy to catch.
So, for the sake of redundancy and all that’s good, here’s five “tax saving” mistakes small businesses have made, and why you should avoid them.
1) Skip Paying
For businesses going through a tight spot and looking to save some money, it might seem that not paying your taxes altogether for a period of time could be a simple fix. After all, with so many millions in tax dollars coming in, no one would notice if some dues were missing, right?
From accounting software sending automated filing reports, to intelligent systems within the IRS that checks against each taxpayer to ensure they’re paying their dues, nowadays, there’s nothing technology can’t uncover – and the IRS is onto the tricks of negligent taxpayers.
In other words, avoiding taking out that employee’s withholding or paying your estimates for the tax quarter to save a little money? It might turn that “tight spot” with your business’ funds into company bankruptcy from tax penalties.
2) Claim Personal Expenses as “Business”
This next one is an easy mistake to make, but whether intentional or not, can still be just as costly. Claiming a personal purchase like a meal out, driving your kid to the soccer game, or buying a new couch for your living room as a business expense may seem like a harmless ploy, but it’s not.
Not only does it come with high tax penalties when easily discovered through a simple audit, but if there’s multiple infractions within your financials, the IRS can charge you for tax fraud.
Don’t risk it, and double check your reports to ensure everything’s classified correctly.
3) Lowering Inventory Valuation
For business owners handling merchandise, inventory can only be deducted as an expense once it’s sold. The more inventory you have on hand, the higher your inventory asset value, and the less cost of goods expenses you can deduct come tax time – thereby affecting reported profit levels. Which means that for some CEOs, this is an opportunity to manipulate the numbers by purchasing inventory for one price, only to lower it’s valuation during tax season to get their deduction whether the item is sold or not.
Like most tax cheats, this is a scheme the IRS is more than aware of, and good at catching. Avoid causing trouble for yourself and keep accurate records that are consistent, year to year.
4) Hiding Income
If you run a predominantly cash-only business, temptation abounds to only report part of the earnings. After all, if no paper trail exists…?
But when suspiciously low income is the number one cause for an IRS audit, and an auditor has only to watch the business for a few days to figure how much revenue you should be making (and how much you’re not reporting), this is just a bad idea. So, you can say goodbye to all that extra cash when the fees come piling in.
5) Falsifying Records
For the business owners blatantly changing vendor costs, lowering invoice amounts, entering incorrect information onto their returns, or otherwise falsifying records to pay less in taxes, there’s one penalty: 3-5 years minimum prison time.
Everyone makes mistakes now and then, and keeping up with your business’s taxes can be hard work, but there is no grace for a deliberate tax fraud, whereas even if it’s an innocent mistake, you’re still responsible for your own taxes.
Don’t risk it – either hire an accountant or learn the ins and outs yourself, but never, ever cheat on your taxes. The only person it will hurt is yourself.