The most common tax mistakes that small business owners make are mixing business and personal finances, choosing the wrong legal entity, claiming too many deductible expenses, missing out on valid deductions, not understanding payroll and employer tax, poor record keeping, filing late or not at all, working with the wrong tax professional, and not using the right tools (Mire, 2016). This paper aims to examine the most common tax mistakes that businesses make, particularly within the restaurant industry, and determine ways to prevent them.
Each form of legal entity has its advantages and disadvantages; it is important that business owners understand them so that they can select the entity that works best for their organization come tax season
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Numerous deductions exist to help businesses ease their tax burdens such as advertising, debt, vehicle expenses, commissions, trade shows, business depreciation, employee benefit programs, insurance, interest, professional services, office expenses, pensions, rent, maintenance of the business premises, supplies, taxes, business travel, utilities, and, wages (Steingold, 2015). One particular tax deduction that restaurants enjoy is donating food and beverages to non-profit organizations (CCH Incorporated, 2006). However, a failure to sort income and expenses can make it difficult to prove the legitimacy of a deduction (Mire, 2016). As long as a business has proper documentation and ensures their deductions are within the law, they should take every deductible opportunity …show more content…
Small business owners are three times more likely to be audited by the IRS than employees are. Furthermore, over 80% of audits end with the taxpayer owing more taxes. More often than not, this is due to back record keeping and not because of dishonesty (Steingold, 2015). Failures of understanding can easily lead to large fines and intrusive audits; the IRS has become less forgiving of small businesses making honest mistakes (Mire, 2016). When businesses that gross over $100,000 are audited, a field audit is conducted. The revenue agents that conduct field audits are highly trained and are able to spot the smallest discrepancies. Because of this, the average small business finds themselves paying 1 percent of their revenues on average, while mid-size to large companies end up paying 2 percent (Sheridan, 2017). Large assessments for uncollected taxes, penalties and fees can force unanticipated borrowing, alter debt repayment plans, and ultimately cause a company to shut down (Skavlem & Schmitz,
LLCs must typically pay more fees to file as LLCs compared to some other business entities or sole proprietorships. Additionally, many states require yearly renewal fees. However, these fees are usually less than what some other corporations have to pay. Because of the protections afforded to LLCs, some types of businesses are ineligible to file as LLCs. Banks, insurance companies, and medical service companies are examples of businesses that can not be a LLC. Another big disadvantage is taxes. Although LLC’s allow owners to avoid federal taxes, you may actually end up paying more than it would with a different corporation, depending upon the nature of the business. Working with an accountant and/or tax lawyer is a really good idea when planning your business and forming your LLC but can also be quite expensive. The LLC business form is a relatively new concept. As a result, not a lot of cases have been decided surrounding LLCs. Case law is important because of predictability. If you know a court has ruled a certain way, you can act in a specific way to protect yourself. But if not many laws have been established yet, there is a certain vulnerability with your corporations that could expose you to greater
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
Financial statement fraud makes up a marginal (less than 10%) percentage of occupational fraud cases, but the median loss is significantly higher at $975,000. A fraud scheme occurring over a significant amount of time will likely result in much higher median losses. For example, a fraud scheme lasting more than five years could result in median losses of $850,000. Larger companies are more likely able to implement strong anti-fraud controls due to size and finances, therefore, smaller companies become more susceptible to fraud schemes due to lack of proper preventive controls. Preventive controls include: implementing internal controls, continually updating the company’s Code of Conduct, rotating jobs/duties, and
The nation has approximately 1 million nonprofit entities of various sorts and hospitals have long been a traditional service provider in the nonprofit sector (Williams & Torrens, page 185). Nonprofit entities are generally exempt from most taxes at the federal, state, and local levels, including income and property taxes (Williams & Torrens, page 185). These facilities are governed by a community-based board that has ultimate authority for running these entities. Sponsorship for a nonprofit can come from various organizations, unlike other hospitals with traditional religious sponsorship (Williams & Torrens, page 185). A small percentage of the nation’s hospitals are operated by for-profit businesses (Williams & Torrens, page 186).
Robertson, John, Tina Quinn, and Rebecca C Carr. “Unreported Tip Income: A Taxing Issue.” The CPA Journal 76.12 (2006): 30-39. Print.
During the audit 213 sales transactions were examined to test revenue controls; 82 deviations were found and are as follows:
The first step in starting any business is choosing the right structure. Often, business owners will consult with a lawyer before they start a company to make sure that all of their forms are in order. Business owners can choose from common business structures like sole proprietorships, C corporations, partnerships, limited liability companies (LLC) and S corporations. Limited Liability Companies An LLC is considered an entirely separate entity from the business owner.
Creditable charitable organizations should continue to receive tax deductions
Accounting for a Restaurant Scenario I have just been assigned as the new system analyst at a restaurant. called Venice, which specialises in Italian food. Up until now all the accountancy was done manually, so it took a lot of time to keep it up. to date. To make it easier and more efficient I have been assigned to introduce a spreadsheet system to help calculate the annual profit.
Making the decision to open your own business is a major life event. Starting a new venture can be exciting as well as rewarding. The first step to becoming a business owner is choosing the type of business you would like to run. This business can be something that you have wanted to start up yourself or you can go with an established franchise. Are you willing to share the profits in exchange for the relative safety of a franchise or would you prefer the risk and rewards of pursuing your own vision? Franchising is a continuing relationship wherein a franchisor provides a licensed privilege to the franchisee to do business and offer assistance in organizing, training, merchandising, marketing and managing in return for a monetary consideration
1. Corporate Law for Ontario Business (2012). Farah Jamal Karmali 2. Business Dictionary (2010). http://www.businessdictionary.com/definition/separate-legal-entity.html
The IRS launched a program, designed to boost tips in large-scale cases, allowing awards of 15 to 30 percent of the amount recovered. They want people to blow the whistle on people who do not pay their taxes. The IRS looks for solid information, not speculation or guesses. Whistleblowing should be part of an ethics training which should include a message from the CEO or the owner of the business, that emphasizes ethical business practices, the code of ethics and decision making by including ethical consideration into strategic planning.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
For-profit organizations depreciation is important because it reduces the taxes that a corporation pays. But in organizations that do not pay taxes, the importance of depreciation expense to decision making is reduced. So the only importance of depreciation expense in a nonprofit context is restricted to making a determination about the extent to which facilities have been depreciated. In this scenario it is very important to have preventive maintenance procedures to reduce the risk of collapsing public infrastructure. Without proper maintenance of facilities, public funds in excess of projections will have to be used to replace prematurely deteriorated facilities or to fund above-normal maintenance repairs. Information about the amount of deferred maintenance can be more important to a nonprofit manager than depreciation expense
"Accountants." WISCareers. University Of Wisconsin System Board of Regents, 2009. Web. 20 Nov. 2009. .