Everybody makes mistakes and that’s pretty normal. However, the mistakes entrepreneurs can make have significant repercussions for a newly developed business, as it has not matured enough to sustain them. When the mistakes are related to taxes, you can get stuck in a long-term trap which is really hard to overcome. This is why it’s important to understand some of the most glaring mistakes so that you can avoid them in the future.
Tax structuring and placing your business at the right location are two of the biggest challenges faced by entrepreneurs. The common mistakes entrepreneurs should avoid at an early stage include keeping a low personal liability and set up costs. That can only happen if your business is in a vicinity that you know a lot about. In many cases, this will be where you live as you are aware of laws and regulations governing businesses in that area. Once entrepreneurs are able to structure and place their business properly, they can invest their time in developing their products and improving their services as there will then be plenty of time for that.
Not Collecting Sales Tax for Online Sales
New business ventures that are related to e-commerce often fall prey to assumptions. They assume that, because of the fact they do not have to pay sales tax for online purchases, they are not supposed to collect it. That is one of the glaring mistakes that entrepreneurs can make. The selling of online products or services is bound to local taxation laws. If the state or city has laws that govern you to collect the sales tax, then you are supposed to collect it and file the returns.
The issue of online sales tax becomes even more complicated with the passage of the Marketplace Fairness Act. According to the act, all non-exempted merchants are supposed to collect taxes from individual customers that are located in the vicinity of the law. E-commerce businesses are thriving in this digital age and the laws which govern these businesses are being optimized by the government to ensure the steady influx of tax from these business ventures. Businesses are bound to abide by these laws and being aware of them is the first step in ensuring their implementation.
Not Keeping Financial Records
Keeping accurate financial records is a tough yet mandatory job for a newly established business venture. Knowing about your financial position is critical to the success of your business as it will keep you out of issues related to taxation.
The initial focus of any new business is to up their sales one way or another and create a solid customer base for their products and services. That makes sense as well because you have ventured into a business from your personal account and your aim is to earn some profit. However, by the end of the year, you are left with a pile of paperwork and taxes that are left unattended because all of your focus has been to increase your sales. In such a scenario, you would either hire an accountant or try to file the tax returns yourself which can turn in to a pretty bad idea.
Some of the most common mistakes entrepreneurs make include the improper handling of receipts and records of the business sales and expenses that could lead to a number of problems. You could overstate your expenses or profits and end up paying higher taxes than otherwise. The point is that, if you are not careful in maintaining proper paperwork for your business on a daily basis, the result might not be in your favor. Apart from that, you would also not have an accurate understanding of the financial standing of your business which is a lot more hazardous than dealing with taxation issues.
How to fix this problem
Everyone makes mistakes, but it is your ability to fix them that makes the difference. Accounting is the basic language of business, however, you do not have to be an accountant to keep track of your financial matters. Hiring a bookkeeper and getting an online software will solve most of your issues related to organizing financial information. You just need to review the numbers on a weekly and monthly basis so that you have a clear picture of what’s going on.
Out of all the mistakes entrepreneurs make, waiting to hire an accountant at the end of a year is one of them. Involving a professional in the process earlier, rather than later, could help you avoid many undesired circumstances related to paying your taxes. Lastly, keep your business books clear of personal expenses, at least for the first year.
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