In this series, we’re outlining our ten rules for staying out of court. In our last post, we explained that the first rule was to incorporate. We also noted that there may be tax benefits for different forms of incorporation. But whether incorporated or not, it’s a good idea to think proactively about tax planning. And for that matter, it’s vital to keep careful records to avoid issues with IRS and state taxing authorities.
Accordingly, our second rule for avoiding legal trouble is to carefully record transactions you make for your business. This is essential because you need to be able to prove that your business expenditures were truly for business purposes. Likewise, you don’t want to shortchange yourself when you may be entitled to take deductions. And of course, it is always prudent to with your CPA or a trusted tax attorney about what deductions your business may be able to claim for the current tax year and what changes you may be able to make to minimize tax liabilities going forward.
But whatever you do, it’s a good idea to deposit all business receipts in a separate account. Even if you are unincorporated you should avoid intermingling your business and personal accounts, otherwise, taxes will be even more difficult. And, if IRS comes knocking, you want to be able to show that everything is properly accounted for.
NFIB’s Tax Guide offers other suggestions for minimizing your risks here.
*While the information provided here is intended to be accurate, it is not legal advice. Employers are advised to seek counsel from a trusted tax law attorney.