Everybody makes mistakes, and that’s normal. However, the mistakes entrepreneurs can make have significant repercussions for their newly developed businesses. It needs to mature enough to sustain them. When the errors are related to taxes, you can get stuck in a long-term trap that is hard to overcome.
This is why it’s essential to understand some of the most glaring mistakes so that you can avoid them in the future. The two biggest challenges entrepreneurs face are tax structuring and placing their business in the correct location. The common mistakes entrepreneurs should avoid early include keeping a low personal liability and setting 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 know the laws and regulations governing businesses in that area. Once entrepreneurs can structure and place their businesses correctly, 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 fall prey to assumptions. They assume they are not supposed to collect it because they do not have to pay sales tax for online purchases. 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 governing you to collect the sales tax, you must 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 should collect taxes from customers in the law’s vicinity.
E-commerce businesses are thriving in this digital age. The government is optimizing the laws that govern these businesses 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.
Any new business’s initial focus is to increase its sales one way or another and create a solid customer base for its products and services. That makes sense because you have ventured into a business from your account and aim to earn some profit. However, by the end of the year, you are left with a pile of paperwork and taxes left unattended because all of your focus has been to increase your sales. You would hire an accountant or file the tax returns yourself in such a scenario, which can be a bad idea.
Some of the most common mistakes entrepreneurs make include improperly handling receipts and records of business sales and expenses, which could lead to several problems. You could overstate your expenses or profits and pay higher taxes than otherwise.
The point is that if you are not careful in maintaining proper paperwork for your business daily, the result might not be in your favor. Apart from that, you would also not accurately understand your business’s financial standing, which is a lot more hazardous than dealing with taxation issues.
How to Fix This Problem
Everyone makes mistakes, but your ability to fix them 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 online software will solve most of your issues related to organizing financial information.
You must review the numbers weekly and monthly to understand what’s happening. 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 any undesired circumstances related to paying your taxes.
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