Criminal Defense Lawyers

How to Prevent Tax Evasion in Your Small Business

How to Prevent Tax Evasion in Your Small Business

Paying taxes is a big part of owning a small business. While no one likes handing money over to the government, failing to pay your fair share can lead to major legal problems. Tax evasion–intentionally avoiding paying taxes you owe–is illegal. It can result in huge fines, jail time, and the collapse of your business. The good news is there are many ways to stay on the right side of the tax code. Follow these tips to keep your small business tax compliant.

Know What’s Taxable Income

The first step is understanding what counts as taxable income for your business. This includes all revenue from sales of products and services. Even bartering transactions where no money changes hands could be taxable. If you’re unsure whether a certain type of payment or exchange should be reported, ask your accountant.

You also need to report all business expenses accurately. Improperly categorizing costs as deductions when they don’t qualify is another form of tax evasion.

Keep Detailed Records

Meticulous record keeping is key to avoiding tax mistakes or misrepresentations. Save receipts for all purchases. Track sales, payments, and expenses. Document business mileage and travel expenses. The more data you have, the easier it will be to accurately calculate your tax liability.

Make sure records are well organized and easy to access in case of an audit. Digital tools like cloud accounting software can help with record keeping for small businesses.

File and Pay On Time

Don’t delay filing your tax returns and paying any tax due. Filing late automatically results in penalties unless you can prove reasonable cause. And intentionally failing to file at all is a red flag for tax evasion.

Christine Twomey

2024-03-21

Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.

Brendan huisman

2024-03-18

Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!

Guerline Menard

2024-03-18

Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️

Keisha Parris

2024-03-15

Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.

Taïko Beauty

2024-03-15

I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!

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2024-03-12

Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.

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2024-03-12

Very professional, very transparent, over all a great experience

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2024-02-28

Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.

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2024-02-24

I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

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If you don’t think you can pay on time, you may qualify for an extension. But this only gives you more time to file your return, not extra time to pay. You’ll still owe interest and penalties if you pay late.

Claim All Valid Deductions

Business deductions help lower your taxable income, so be sure to claim all you’re entitled to. Common write-offs include:¹

• Equipment, supplies, software, and inventory purchases
• Rent, utilities, insurance, and other operational expenses
• Vehicle mileage and transportation costs
• Meals, travel, and entertainment for business purposes
• Salaries, benefits, and contractor labor
• Interest on business loans and credit cards
• Professional services like legal, accounting, marketing, etc.

But make sure any deductions you claim are allowed by the IRS and that you have the records to back them up.

Take Advantage of Tax Credits

Tax credits directly reduce your tax bill, so they’re especially valuable. Take advantage of small business tax credits like:²

• Research and development credit – for increasing research activities
• Work Opportunity credit – for hiring veterans, food stamp recipients, ex-felons, and other target groups
• Disabled Access credit – for accommodating disabled employees and customers
• Empowerment Zone Employment credit – for hiring employees who live and work in certain urban and rural areas
• Credit for employer-paid FMLA and sick leave – for providing paid family and medical leave to employees

Hire a Professional

Running payroll, tracking income and expenses, claiming deductions and credits – it’s a lot for a small business owner to handle alone. Getting help from a qualified tax preparer or accountant can help you stay compliant.

Just be sure to find someone trustworthy. Unscrupulous tax pros may encourage you to make questionable claims to get bigger refunds.

Pay Estimated Taxes Quarterly

If you have variable or seasonal income, you may need to pay estimated taxes every quarter to avoid penalties. Estimated taxes are due April 15, June 15, September 15, and January 15. The IRS requires you to pay either 90% of your total tax for the year or 100% of the prior year’s tax (110% if your income exceeds $150,000).³

Paying quarterly helps ensure you don’t get stuck with a giant tax bill you can’t afford come April. It also shows the IRS you’re making a good faith effort to meet your obligations.

Correct Any Mistakes

If you discover an error that led to underpayment, amend your return as soon as possible. Similarly, if you receive a notice from the IRS about underreported income or improper deductions, address it right away. Honest mistakes happen, but attempting to hide errors is when you get into tax evasion territory.

Coming clean and paying any additional tax due, plus interest and penalties, shows you’re not willfully cheating. And it helps avoid potentially larger fines and legal action down the road.

Keep Personal and Business Finances Separate

Co-mingling personal and business finances is asking for tax trouble. Have separate bank accounts and credit cards. And never use business funds to pay personal expenses unless you record it properly and claim it as income.

Also, don’t have clients pay you directly. All revenue should go into your business accounts. This helps avoid any temptation to pocket cash payments.

Watch Out for Common Problem Areas

Some types of deductions draw extra scrutiny from the IRS. These include:⁴

• Home office deductions – Make sure to follow the rules for allowable expenses and calculating the deduction.
• Business use of vehicles – Keep detailed mileage logs and only claim eligible costs.
• Travel and entertainment – Document how expenses relate directly to your business.
• Independent contractors – If you hire contractors, follow IRS guidelines to properly classify them.

Improperly claiming these deductions is a red flag for auditors.

Stay Organized and Communicate

Sloppy record keeping can make it look like you have something to hide. Staying organized demonstrates you’re making a good faith effort to comply.

Also, maintain open communication with your tax preparer or accountant. Discuss any areas of uncertainty and work together to properly report all business income and expenses.

Monitor Employees

As a business owner, you can be held liable if employees engage in tax fraud. This provides incentive to monitor them for suspicious activity. Tell employees you have zero tolerance for underreporting income, misstating expenses, or other tax evasion.

Of course, most tax evasion starts with business owners cutting corners. Set the right example by making ethical business and tax reporting practices part of your workplace culture.

Preventing tax evasion takes diligence. But staying compliant protects your business and provides peace of mind. Follow these tips to keep your small business on the right side of the tax code.

References

1. IRS: Deducting Business Expenses

2. SBA: 6 Small Business Tax Credits & Tax Relief Available Now

3. IRS: Estimated Taxes

4. IRS: Common IRS Audit Triggers for Small Businesses