We’ve had the pleasure of working with some of the most ambitious and passionate small business owners in the area. They have great people, great products, and great services, but even the greatest business suffers greatly in the face of a financial mishap. Ann Irons, CPA, who provides accounting and tax preparation in Bellingham, MA, shares a few of the most common missteps made by business owners.

Placing Too Much Trust in a Single Employee

Many small business owners are heavily involved in the recruiting, hiring, and training of every employee, which is wonderful for creating a tightly knit “family” environment. Unfortunately, first impressions aren’t always accurate, and a dishonest worker slips through the cracks every now. Every year, hundreds of small business owners lose substantial amounts to embezzlement, often forcing the owner to scale back or close shop. This is where hiring a CPA can save you thousands of dollars and untold hours of grief and stress. Entrusting check writing and accounting to a single employee creates a major risk for your small business.

“Borrowing” From Employee Withholding

We’ve seen unfortunate cases where small business owners treat Social Security and employee withholding as fair game for financial emergencies. Even when times are tough, this practice is a serious no-go, says Ann. When an owner borrows against their employees’ withholding or Social Security trusts, he or she will be held personally liable. This could ultimately result in serious penalties that would make recovery difficult, even in more favorable financial conditions.

Independent Contractors Aren’t Always the Answer

When you have so much invested in your business, every penny counts. Ann often fields questions from small business owners who must choose between designating workers as employees or independent contractors. At first glance, the independent contractor route appears to be the better bargain. Not necessarily, cautions Ann. They key word here is “independent,” as in “entitled to more freedom in the method, setting, and means by which work is accomplished.” The independent contractor designation works nicely with some job roles, such as writing, construction, and consulting. Ultimately, the IRS may decide whether you’ve used the appropriate designation. If they find otherwise, penalties can levied for failure to collect Social Security taxes. You might also have to pay a minimum of 40% of workers compensation for the period in question.

Starting a new business? Need help managing your company’s taxes? With more than 15 years of hands-on experience in financial services and “Big Five” accounting firms, Ann Irons, CPA, has proved herself to be an invaluable resource for individuals and businesses who need accounting services in Bellingham, MA. To speak with Ann or a member of our team, contact us at 508-966-9700. Follow us on Facebook for tax tips and updates.