Three Common Mistakes Established Smart Business Owners and Entrepreneurs Can Avoid
Even after all these years of representing small businesses, my blood pressure spikes when the IRS letter comes. This week it was for Legal Direction.
They notified me Legal Direction had filed its tax return late, so there was a $200 penalty. For me, this was more of an aggravation than anything. I found the tracking receipt showing the tax return was mailed from the Durham, NC post office on March 9, 2019, but not delivered to the IRS facility until March 22. It was on time. Fortunately, I could prove it.
That made me think of some common mistakes start-ups make.
1. Not Tracking Important Documents. Do you track your correspondence with the IRS? That’s a common mistake small business owners and entrepreneurs make. There are many cost-effective ways to track delivery, including flat rate priority mail and certified mail (with or without a return receipt).
2. Not Filing Annual Reports with the Secretary of State. While we’re on administrative matters, do you have a calendar reminder to file annual reports with the Secretary of State? They are due when the corporation’s tax return is due (usually March 15) or April 15 for a partnership or LLC. If you forget, you can be administratively dissolved by the Secretary of State. It is easy to file late and cure the dissolution as if it never happened, but it can be embarrassing if your new customer looks you up or you are applying for credit.
3. Expanding Without Risk Assessment. Another common mistake is to grow different lines of business within the same LLC or corporation. While it is true an entity shields your personal assets from business creditors or problems, it may not be ideal to house everything together. Does one area of business have better tax rates or exemptions from employment law? Is one area much riskier that the others (involving children or food, for example). You may not want to risk the assets of a more profitable business line if there is a big lawsuit on a less profitable area. Combining agriculture (farm) businesses with other businesses, such as retail or restaurant, could jeopardize agricultural tax credits, employment law and insurance benefits.