Tuesday, January 6, 2009

Minimize your tax liability exposure

Consider these three simple areas that can make a tremendous difference in your tax liability exposure.

Failure to keep books.

If you do things correctly, your bookkeeping records will clearly reflect the earnings and expenses of your business. This makes for easy and accurate tax preparation as well as appropriate support in the event of a tax audit.

If this isn't motive enough, think about this. In the case of an IRS audit, if your business does not have adequate financial records, they are in their right to "approximate" your income based on industry standards and are under no obligation to assume any legitimate expenses to offset your revenue — thus all profit, all taxable.

If you don't know how to keep records for your business, go to the IRS Web site for small business record keeping publications. You can outsource your recordkeeping to a bookkeeping service or take a class and learn how to manage the financial records of your business. There is no time like the present.

Falling behind on tax payments.

Self-employed individuals do not have the benefit of someone else being responsible for tax withholdings. You are your employer.

As an employee, your employer makes these "deposits" for you. Each pay period, taxes are taken from you check and remitted by your employer, including their portion.

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