If you are thinking of not filing a tax return, you should think again. You may think you’re sticking it to the man, but you’re really sticking it to yourself. Filing a tax return is just one of those things you have to do in this country. Don’t shoot the messenger, but here are a few reason why you should file a tax return.
- Banks look at tax returns as a qualifications for loans. If you haven’t filed, it will be hard to prove your income.
- Not filing can open you up to an audit. There are various documents that are filed with the IRS that support your income history. If there is no record of a filed return, you can trigger an automatic audit. Once an audit is started, the IRS has right to audit other years.
- The IRS will file a return for you. If the IRS files a return for you, they will not take into consideration every credit and deduction you may qualify for. Therefore you may have to pay a higher tax liability. Failure to pay may result in suspension of future refunds, way garnishments, or withdrawal of funds from your bank account.
- It is a criminal offense. If you purposely avoid filing a return, you can be charged with crime. Although there aren’t many cases where individuals were prosecuted for not filing a tax return, you can be forced to pay high penalties.
As a business owner, you need to protect yourself from personal liability. If your client sues you for any reason, you could be found at fault. If this happens, they can come after you home, car, as well as any money saved for retirement. One of the ways to prevent this is to structure your business so your personal business is not affected.
1. Apply for an EIN (Employer Identification Number)
The EIN (also known as a Federal Tax Identification Number) is used to identify a business entity. Your business entity will need to be a Limited Liability Company (LLC) or a corporation in order to avoid liability.
2. Open a Business Bank Account
It is important not to mix personal and business finances. When you pay for business expenses from your personal bank account, this opens your personal assets up to liability. The same goes for the money you earn.
3. Pay Yourself from your Business Account
If you plan to pay yourself from the money earned through your business, you should do it through your business bank account. Write a check from the business account to yourself then deposit it into your personal account. Make sure your write “personal wages” in the memo line.
4. Sign Documents as Owner
When you sign documents in behalf of your business make sure your write, “owner” next to the subject line. It is important to specify your position in the business.