Most people do not consider their actions as having any consequences. Just act and if it goes wrong, fix it then. That is not the best method of dealing with life, especially when the stakes are high. Trying to press on the “pause button” or trying to “reverse gears” can make matters worse. Sometimes, it gets very costly to fix. Such is the case when it comes to taxes. True, you can always file an amended income tax return, but will that trigger an audit or an assessment for a Trust Fund Recovery Penalty (TFRP) or other assessment (5.19.14 Trust Fund Recovery Penalty (TFRP) | Internal Revenue Service (irs.gov))?

Avoiding tax problems before they start is the best advice. This is simple. Just follow the rules and document, document, document. Consulting a tax professional will not hurt either. 

The rules are simple:

  1. Keep track of all expenses. That means, keep receipts, and store them safely away. You can also scan them into your computer for future reference since thermal paper receipts disappear over time. Keep a backup copy on another electronic device or drive and store it at another location for safe keeping. It is important to have a record of all expenses. This will become more apparent when you calculate your tax returns. Certain expenses are tax write-offs which will decrease your tax liability (https://www.irs.gov/businesses/small-businesses-self-employed/business-taxes).
  2. Keep track of all sales and/or services. Even if you barter goods and services (exchange them instead of using money in the transaction), you need to know if your business is operating at a profit or a loss. If you have more expenses than revenue, the business is operating at a loss. If you have more revenue than expenses, the business is operating at a profit.
  3. Open all mail from any tax authority. The Internal Revenue Service (IRS) sends letters alerting you to any actions they may take, such as assessing a Trust Fund Recovery Penalty (TFRP). Those letters also explain why they are acting. It is often possible to “fix” the tax problem before it gets any worse. You can negotiate payments before they seize your money and/or property if you owe the IRS money. The best advice is to consult a tax professional before contacting the IRS.
  4. Consult a tax professional. Preparing your own tax returns can “save” you money, but it is “costing” you time. As the adage states: time is money. Besides, you cannot be knowledgeable regarding all the tax laws if you do not work in that field. This is especially true regarding help with employment taxes. Tax professionals know the tax laws so they can keep you within the parameters of those laws. They also know how the IRS works and what triggers an audit.
  5. Stay within the parameters of the law. Follow rules, regulations and laws pertaining to taxes sounds like a “no brainer”. However, there are some individuals who believe they can work around those parameters without consequences. Nonsense! Tax returns are now scanned into the IRS system. IRS software then searches for irregularities. This can trigger an audit or at least a second lookover of the tax return.

Tax law is complicated. Hiring a tax professional saves time and money. Tax professionals can advise you as to what actions you must take to limit your tax liabilities. Sometimes this advise or strategy can take a while to put into place or before benefits are apparent. For example, is it less expensive to buy a Xerox machine or to go to the neighborhood copy place? You must factor in your time and expense in leaving your place of business and going to the copy place. Then you must consider what time and money it cost you to leave your business during that time. You could have been completing an order to generate money for a service. Next, you must decide if the price of the Xerox machine and its maintenance minus depreciation annually is more or less than the cost of using a copy place. Only a tax professional can answer that. 

The experts at Bullseye Tax relief can help you determine the answer to the above situation. They can also ensure that you do not “overpay” your tax bill. Call them today!

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