They say there’s nothing certain in life but death and taxes, but just as certain is the ability to make a mistake on your taxes. Watch out for these frequent errors to save you time, money and a possible visit from the IRS.
1. Choosing the Wrong Form
If you are self-employed, you qualify as a small business owner, whether you have employees or not. Therefore, you can’t legally report your income on your 1040EZ or 1040A tax form. You should file a long form 1040 return with a Schedule C (loss or income from a business) and Schedule SE (self-employment tax) attached.
2. Not Filing On Time
In addition, once you’ve filled out the correct form as a business owner, you are required to submit your taxes quarterly as opposed to annually. The IRS can and will fine you for not doing so.
3. Misclassifying Employees and Independent Contractors
If a person reports to you on a regular business, he or she is an employee who requires a W-2 and for you to withhold a portion of taxes and give to the government. If a person controls their own activities and is brought in for a specific task, he or she is an independent contractor and requires a 1099 without withholding taxes. If classified incorrectly, the IRS can levy more penalties.
4. Failure to Acknowledge Equipment Depreciation
After continued use of your materials, your tools are guaranteed to experience a fair amount of wear and tear. You can deduct money from your taxes to account for a loss in your equipment’s value.
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