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Small Business Case Study

opinionated Essay
1793 words
1793 words
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A small business can be defined as a legal entity consisting of very few employees. Establishing a business such as a proprietorship is the least complicated among business structures. Proprietorships also have a major advantage over other business structures with regards to filing taxes. Profits generated by the business are taxed at individual tax rates thus avoiding the double taxation incurred by corporations. Local economies, government offices, schools and the unemployed benefit greatly from the growth stimulated by these companies. The taxes collected from small businesses and job creation makes small business a vital part of the community.
Small businesses encounter many challenges relating to start-up funding and decisions regarding …show more content…

In this essay, the author

  • Explains that small businesses are legal entities consisting of few employees. proprietorships have a major advantage over other business structures with regards to filing taxes. local economies, government offices, schools and the unemployed benefit greatly from the growth stimulated by these companies.
  • Recommends investing in an accountant to handle tax preparation and filing needs in addition to using accounting software to ensure reporting accuracy and tax compliance.
  • Explains that tax errors result in costly penalties that have the potential to create instability that can contribute to the failure of a small business.
  • Opines that cloud accounting software is becoming increasingly popular to effectively and efficiently manage the pulse of a company, and that hiring an accountant to assist with tax preparation and planning is invaluable.
  • Explains that the most attractive feature offered by modern accounting software packages is web integration, which helps to facilitate the business and accountant relationship.
  • Opines that small businesses can benefit from an accountant's extensive tax code knowledge to ensure tax savings are not overlooked.
  • Explains that businesses that implement a tax planning strategy minimize taxes owed based on future goals, lower their tax rate, and take advantage of tax credits.
  • Explains that self-prepared business returns have high instances of irs audit due to small businesses not keeping accurate records and making errors that involve under-reporting income on their business tax returns.
  • Explains that a business may be selected for audit through the discriminant function system, which flags returns based on scoring systems.
  • Opines that tax professionals are expert advisors on red flag items and controversial deductions. cpas conduct business with the irs in a manner that is cooperative without providing potentially damaging details.
  • Opines that courageous, innovative, hardworking individuals venture on the difficult journey of realizing a dream with hopes of success at the heart of it all.
  • Recommends that small business owners delegate complicated accounting processes to seasoned accountants to reduce the rate of tax errors and ensure tax compliance.

Many new business owners struggle with the decision of whether or not to outsource tax compliance services plus “on average 55% of SME’s consider cost of service is an obstacle for them to seek external advice” (Banham, 2014). There are many tax authorities to which a business can owe taxes such as payroll taxes, self-employment taxes, property taxes and sales taxes to name a few. To make matters more confusing, the tax forms, filing and payment deadlines for each type of tax are also individual. Tax errors can occur in a number of ways and are not simply limited to under-reporting income. Other types of errors that can bring about penalties include applying deduction limitations incorrectly and worker misclassification. The IRS grants leniency to first time offenders that fail to file, pay or make timely deposits under the First Time Penalty Abatement policy. The penalties assessed for underpayment of taxes due to negligence are not covered under this policy. The majority of young businesses are not equipped with the financial backing to withstand the blow of such penalties resulting from an error on a tax

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