How To Avoid Paying Tax Self Employed – True or False?
The nightmare goes something similar to this! You are busy at work when a stone faced man with a dark suit and a large briefcase appears in the doorway. He’s a rogue secret service agent and he’s come to give you the red pill or blue pill for how to avoid paying tax self employed.
Just kidding! Sounds like a great movie though (the Matrix).
He would like to see all of your receipts for the last five years.
Related to how to avoid paying tax self employed:
You do not exactly have receipts for everything. Your unemployed son has been living at home office for the past few months.
You could have forgotten to report some of the income.
And you may tell by looking at this guy that he’d love nothing better than to talk all day about numbers and statistics.
Fortunately, the nightmare is further fantasy than reality.
Only a tiny part of small businesses get audited.
And once they do, they usually receive a letter, not a visit from the Internal Revenue Service, asking for more documentation to clear up a discrepancy.
Still, no small business owner wants the worry.
Tips On Doing it the Right Way
Here are a few small business tips on how to avoid a tax headache and deal with one if it does happen.
Check your numbers.
Remember, when someone issues you a tax form that reports income, like a 1099, they also report that info to the IRS.
The Internal revenue service will expect the numbers on your tax return to match what they’ve received from 3rd parties.
Consider having an accountant prepare your return or use tax preparation software which will do the mathematics for you.
Don’t report a loss every year.
If you report a net loss in over two out of five years, you are a likely candidate for questions.
And odds are, the Internal Revenue Service might determine that your company is a hobby and disallow all of your company expense deductions.
Instead, keep good records and report income and expenses accurately.
You will minimize your risk of an audit if you keep all of your company income and expenses in a business banking account and retain your company expense receipts.
This will not only make it simpler to prepare your tax return, but you will also have what you need to support your return if you ever were audited.
Don’t try to hide income or overstate your expenses.
And while its fine to round numbers to the closest dollar, rounding to tens or hundreds can give the Internal revenue service the impression that you are just making up numbers.
Dont pay overly high salaries to employees who’re shareholders.
Whether you’ve a C corporation, paying your managers a high salary can be a way to minimize business profits and for that reason pay lower taxes.
For that reason, unusually high salaries might open your tax return to scrutiny.
Know exactly what a reasonable salary range is for your industry, and do not exceed it.
Follow the tips above and you won’t need to go to the dark side about how to avoid paying tax self employed.
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