Tax filing issues are often problematic for small business owners. This is often due to the simple fact that they have not kept up to date on current tax laws. One issue that can be particularly troublesome is business deductions.
Business deductions must be valid, and they must be properly recorded and the receipts made available in the event the business is subjected to an Internal Revenue Service audit. There is, however, one other issue concerning deductions, and it has to do with fraud.
Business identity theft
You likely have heard about identity theft plaguing consumers, but the same thing can happen to businesses. In fact, this kind of identity theft has been increasing in the past few years. The perpetrators have figured out that they can obtain larger tax refunds with the stolen identities of businesses, for which they claim both business deductions and credits. The Treasury Inspector General for Tax Administration believes that over $11 billion in fraudulent tax refunds will be issued by the IRS in the next few years because of illegally obtained Employer Identification Numbers, or EINs.
Failures to avoid
Identity theft aside, businesses should not fail to organize and record deductible expenses. Whether a business lunch or a purchase of office supplies, deductions mount up. Every one represents savings for the company. However, it is essential that each deduction has a legitimate business purpose and the receipts for the purchases be carefully maintained. Failure to do so might result in costly fines from the IRS.
Tax penalties of all kinds can be stiff. If a small business fails in any way to conform to current tax laws, the resulting penalties could cause the company to close its doors. Whether the company is fighting identity theft or grappling with the proper recording of business deductions, the importance of staying up to date with the latest tax rules and regulations cannot be overstated.