Myth #1: “If I file an extension, I get more time to pay my taxes.”
Reality: An extension gives you more time to file your return, not to pay what you owe. If you don’t pay the taxes you owe by the April 15th deadline, the IRS may tack on penalties and interest. Even if you file within the extension period, you could still be hit with penalties and interest if your tax payments are behind.
Myth #2: “I can write off anything if I say it’s a business expense.”
Reality: The IRS only allows deductions for expenses that are ordinary and necessary for your business. Office supplies and client lunches typically qualify. But if you’re trying to write off a family vacation or a new wardrobe, it likely won’t hold up under scrutiny.
Myth #3: “Paying someone as an independent contractor means I don’t have to worry about payroll taxes.”
Reality: If someone works under your direction, during set hours, using your tools or systems, they may legally be considered an employee, not an independent contractor. Misclassifying workers is a red flag and can lead to hefty fines and back taxes.
Myth #4: “Bank statements are enough to prove business expenses.”
Reality: Bank or credit card statements only show where and how much you spent, but they don’t reflect what you bought or why it qualifies as a business expense. You’ll need to keep receipts, especially for items such as meals, travel, or mixed-use purchases.
Myth #5: “I’m too small to get audited.”
Reality: No business is too small to get audited. A small company with high deductions or unusual transactions could be more likely to face an audit. Be sure to keep good records and seek proper guidance to keep things smooth and stress-free.