Recession-smitten business owners obsess about generating new sales. But another determinant of profits is simpler to come by — the money saved by avoiding tax penalties. There are several ways to keep your tax fines and late fees down. One is to do things that reduce chances of a tax audit because that lowers the odds you'll be slapped with penalities. For example, don't round off figures when it comes to reporting income or expenses. "If you report income as one thing and a client reports the corresponding payment from them as something else, it tells the IRS that you're not necessarily reporting things accurately," says Duncan Connor, editor of content at Company.com, a firm that helps businesses save cash.
Secondly, be sure to pay taxes on time each quarter to avoid hefty late-fees at year end. Business owners are required to cough up either 90% of their taxes owed or 100% of the taxes they paid the previous year by the current year's end to avoid being slapped with underpayment penalties. In periods when cash is tight owners may be tempted to push off such payments. But beware: the IRS will take its pound of flesh — and more — if you're late.
Finally, be wary of deductions and other items that could raise red flags for the IRS, such as having multiple offshore accounts or making giant contributions to charities. And for all deductions, have well organized receipts.