Many businesses use independent contractors to help keep their costs down. If youre among them, make sure that these workers are properly classified for federal tax purposes. If the IRS reclassifies them as employees, it can be a costly error.
If youre claiming deductions for business meals or auto expenses, expect the IRS to closely review them. In some cases, taxpayers have incomplete documentation or try to create records months (or years) later. In doing so, they fail to meet the strict substantiation requirements set forth under tax law.
Do you play a major role in a closely held corporation and sometimes spend money on corporate expenses personally? These costs may wind up being nondeductible both by an officer and the corporation unless proper steps are taken. This issue is more likely to arise in connection with a financially troubled corporation.
What if you decide to, or are asked to, guarantee a loan to your corporation? Before agreeing to act as a guarantor, endorser or indemnitor of a debt obligation of your closely held corporation, be aware of the possible tax consequences. If your corporation defaults on the loan and you?re required to pay principal or interest under the guarantee agreement, you don?t want to be blindsided.
At minimum, you should keep tax records for as long as the IRS has the ability to audit your tax return or assess additional taxes, which generally is three years after you file your return. However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income (AGI) by more than 25%.
Are you thinking about launching a business with some partners and wondering what type of entity to form? An S corporation may be the most suitable form of business for your new venture. Here?s an explanation of the reasons why.
If you file a joint tax return with your spouse, you should be aware of your individual liability. And if youre getting divorced, you should know that there may be relief available if the IRS comes after you for certain past-due taxes.