Everybody makes mistakes, and that is normal. However, entrepreneurs’ mistakes have significant repercussions for a newly developed business, as it has not matured 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. That is why it is essential to understand some of the most glaring mistakes so that you can avoid them in the future.
Two of the most prominent challenges entrepreneurs face are tax structuring and placing your business at the correct location. The common mistakes entrepreneurs should avoid at an early stage include keeping a low personal liability and setting up costs. That can only happen if your business is in the vicinity that you know. This will be where you live in many cases, as you are aware of laws and regulations governing businesses in that area. Once entrepreneurs can structure and place their business correctly, they can invest their time 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 that they do not have to pay sales tax for online purchases because of this fact. 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 are supposed to collect it and file the returns.
The online sales tax issue becomes even more complicated with the passage of the Marketplace Fairness Act. Non-exempted merchants are supposed to collect taxes from individual customers in the vicinity of the law. 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. Companies are bound to abide by these laws, and being aware of them is the first step in ensuring their implementation.
They are not keeping financial records
Keeping accurate financial records is a challenging 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 because you have ventured into a business from your account, aiming to earn some profit. You would either hire an accountant or file the tax returns yourself, which can become a bad idea.
Some of the most common mistakes entrepreneurs make include the improper handling of receipts and records of the business sales and expenses, which could lead to some problems. You could overstate your costs or profits and end up paying higher taxes than otherwise. If you are not careful in maintaining proper paperwork for your business daily, the result might not be in your favor. 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 primary 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 need to review the numbers weekly and monthly to clearly understand what is going on.
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. Lastly, keep your business books clear of personal expenses for the first year.
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