Businesses are always looking to balance income vs. expenses to avoid negative cash flow. Tax filing, deductions, and profit and loss statements are critical to the smooth sailing of a business, small or big.

Tax season can be scary if you don’t fully understand how taxes work and if you’ve been doing your own taxes to save costs as a new business. You can easily get sidetracked and fail to file or pay on time, resulting in a pileup of taxes, not to mention late payment penalties.

While hiring a tax service is our first piece of advice, we understand that when you’re in a bit of a jam, you might need to rely on your own knowledge of tax liability till you can afford one. Here’s all you need to understand about tax liability.

What is Tax Liability?

In the simplest terms, tax liability is the money you owe to the IRS by the end of a tax year. It can go back years if you haven’t paid your taxes in full in the past and owe back taxes. You can have tax liability due to any number of factors. Not filing taxes is among the top ones, combined with not paying taxes on time.

If you fail to disclose an income source to the IRS, it means you’re also not paying tax on that income. If the IRS finds out, you might end up owing them thousands of dollars later in liabilities and back taxes. Other forms of tax liabilities include business tax liability, earned income liability, sales tax liability, payroll liability, etc.

Is Tax Liability Bad?

Filing before time can save you from the hassle of tax liability. However, if you do end up in this unfortunate situation, know that all is not lost. While bad profit history and owed taxes can generally impact a business’s valuation and investors’ morale, you can take a few steps to minimize tax liability.

• A 401K plan allows you to reduce gross income, thus resulting in a direct reduction in income tax.
• Charity donations are a great way to help marginalized communities while benefitting from tax deduction laws regarding charitable contributions.
• Devalued investments can be sold and filed in losses to considerably lower tax liabilities.

You can’t have any tax liability if your income tax return doesn’t need to be filed or the total tax for the previous year was zero. Just make sure you’re filing taxes right; not doing so can lead to penalties and even jail time.

Every business wants to hire the best accountant or outsource to a tax service with an impeccable record. Hiring a tax and bookkeeping service can help you a great deal in tax season as well as throughout the year if you’re also using their payroll and various other accounting and  taxation services.

Based in Florida, we proudly serve all your accounting and business needs  and have valuable experts on standby, ready to provide expert advice on your business requirements. Serving in multiple cities of Florida and South Florida, we, at Accounting and Business Solutions also provides our service all over the United States remotely and can be contacted via email or call.

Call us at +1(954) 596-9966 or drop us an email at inquiries@myabaccounting.com and we’ll get back to you immediately.