In a truly astonishing tax-related event, a woman from Georgia attempted to claim a staggering $94 million tax refund! To put that into perspective, you’d have to earn over $1.6 billion to legitimately owe that amount in taxes based on Georgia’s 6% state income tax rate. It’s hard to imagine she earned that much!
Her plan unraveled when investigators, growing suspicious of her persistent inquiries about the status of her refund, set up a sting. They asked her to collect her refund check at a local supermarket, where she was promptly arrested.
Now, shifting from this wild story to some practical advice, let’s talk about tax tips for small business owners and freelancers:
1. Pay Some Taxes: It might sound counterintuitive, but paying some taxes can actually keep you off the IRS’s radar. For instance, consistently claiming large losses or no income at all flags your account for audits. My accountant once had a client, a hotel worker making $50,000 annually, who tried to claim $40,000 in clothing expenses to get a refund—it simply didn’t work.
2. Stabilize Your Tax Returns: Avoid significant fluctuations in what you pay each year. If your income and taxes suddenly drop, it could raise suspicion. For example, I experienced a significant drop in my taxes one year due to deferred stock sales, and it was a stressful time waiting to see if I’d be audited.
3. Understand Your Industry’s Financial Norms: If your business operates in a sector like software, where profit margins are typically around 20%, reporting something drastically higher or lower could attract unwanted attention from tax authorities.
4. Invest in Your Business: If you’re looking to reduce taxable income, consider reinvesting in your business. This could be something as large as buying a new company vehicle or as simple as upgrading equipment. These purchases can often be written off, lowering your taxable income while enhancing your business operations.
5. Help Others to Help Yourself: Employing family members or friends in legitimate roles can be a win-win situation. Not only do you support someone you care about, but their salaries are business expenses that reduce your taxable income.
Remember, staying on top of your taxes isn’t just about avoiding trouble; it’s about making smart choices that benefit your financial health and future stability. Whether you’re a seasoned business owner or a freelancer just getting started, regular reviews of your financials can save you from headaches down the road. Keep an eye on your income, expenses, and potential tax deductions throughout the year, not just at tax time.
