On behalf of Silver Tax Group posted in Back Taxes on Thursday, April 27, 2017.
If you are a Michigan small-business owner, specific mistakes could result in a much greater chance of you facing an audit and tax penalties. The problem for self-employed individuals is that besides avoiding such penalties, it can still be necessary to take advantage of every deduction merely for your business to survive.
The IRS is particularly focusing in on those business owners filing Schedule C forms. Allegedly, many such sole proprietors underreport income by 57 percent. And due to suspicions of underreporting, the IRS is now targeting small businesses and small proprietors who file Schedule C forms.
Some of the bigger tax mistakes small-business owners can make include:
- The failure to report income. The IRS is on the lookout for business owners who hide or underreport income. This particularly includes convenience stores and gas stations where customers pay for goods with cash.
- Neglecting to report income appearing on 1099 forms. When an independent contractor receives more than $600 from any company, that company must then send out a Form 1099 to the IRS and the contractor.
- Deducting in excess of $5000 startup expenses for a new company. Any additional expenses require depreciation over a 180-month period.
- Failure to use caution when deducting travel, entertainment and meals. The IRS looks at such expenses closely and may question such deductions that appear excessive.
- Making a claim that a hobby business is actually a standard business. Tax rules regarding a hobby in which you make a little money differ greatly from those regarding deductions for a standard business.
- Unauthorized home office deductions. To take such a deduction, you must use that particular space “exclusively and regularly for your work.”
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Whether a business owner or individual taxpayer, it is important to take care when claiming deductions on your tax forms. If you have questions regarding these deductions, please ask for assistance from an experienced tax attorney.