Tax Risks That Sneak Up on Business Owners

Burkland Brief:

• State expansion, remote hires, or overseas contractors can all trigger surprise tax obligations.
• Many businesses miss out on tens or hundreds of thousands of dollars from the R&D credit.
• Worker misclassification and equity reporting errors are audit magnets.
• Tax issues don’t usually show up screaming; they build slowly in the background.
• With the right planning, you can stay focused on running your business, not reacting to IRS letters.

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Running a business means wearing a dozen hats, and “tax strategist” usually isn’t one of them. But tax problems don’t wait for you to be ready—they tend to sneak in while you’re focused on customers, operations, or next quarter’s targets. Whether you’re expanding into new markets, hiring remote employees, or offering ownership to key staff, every move you make can quietly shift your tax obligations. We’ve seen it too often: years of growth followed by a single tax misstep that throws a wrench into everything. Let’s keep this from happening to your business.

Here are five tax risks we see businesses overlook, and how you can stay ahead of each one.

1. State Tax Compliance

The Invisible Tripwire

If you operate or sell across state lines, you may owe taxes there, even without a physical office. This concept, known as “nexus,” can be triggered by something as simple as hiring a remote employee in California or landing a big contract in Texas.

States are stepping up enforcement. Overlooking nexus can lead to back taxes, penalties, and interest. The bill adds up fast.

Mitigation Steps:

• Review your operations at least annually to see where nexus might apply.
• Register in new states promptly.
• Use a tool like Avalara or TaxJar to automate sales tax tracking and filing.
• Keep a compliance calendar. You’ll thank yourself later.

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2. R&D Tax Credit Missteps

The Quiet Credit Too Many Ignore

Think the R&D credit is just for inventors in lab coats or companies building the next big AI tool? Think again. Businesses making technical improvements like developing new products, improving processes, or enhancing internal systems may qualify. Some businesses are eligible for tens or even hundreds of thousands of dollars in savings, yet never claim a dime. Others rush the paperwork, skip the documentation, and wind up in audit territory.

Mitigation Steps:

• Work with an R&D tax specialist to assess your eligibility.
• Track time spent on qualifying activities using a tool like Harvest or Jira, and keep detailed records of the work being done.

If it involves uncertainty and experimentation, it might qualify. Burkland’s tax team has helped our clients claim over $23M in R&D tax credits in the past year alone.

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3. International Tax Exposure

Global Ambitions, Hidden Triggers

Hiring talent abroad or setting up operations in another country? Congrats. It’s a great step—but it also invites a new layer of tax complexity. U.S. tax law requires detailed disclosures and transfer pricing documentation. Forget to file required forms like 5471 or 8865 and you could face automatic $10,000+ penalties per year, per form.

Mitigation Steps:

• Consult an international tax expert before hiring or expanding outside the U.S.
• Use services like Deel or Gusto to stay compliant.
• Build a calendar of international filing deadlines. These forms are not optional—and they’re not forgiving.

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4. Misclassifying Workers

No Big Deal—Until It Is

Many growing businesses leverage independent contractors to streamline costs and stay flexible. But if those contractors look and act like employees, you might owe payroll taxes, benefits, and more. Misclassification often leads to audits, legal claims, and unexpected back taxes. It’s one of the most common issues we see.

Mitigation Steps:

• File Form SS-8 to request a determination of the status of a worker for purposes of federal employment taxes and income tax withholding.
• Refer to the IRS employee vs. contractor guidelines. Clear contracts help, but day-to-day behavior matters most.
• Use a service like Gusto or Justworks to manage and classify workers correctly.

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5. Equity Compensation Tax Issues

The Ownership Perk with Strings

Attached Offering stock options or ownership to key employees? It’s a powerful incentive, but also a tangle of tax rules. Miss a 409A valuation or fail to file Form 3921, and you could face penalties, not to mention confused or frustrated employees stuck with surprise tax bills.

Mitigation Steps:

• Keep your 409A valuation current, especially after major events.
• Use a system like Carta or Pulley to track options and handle reporting.
• Educate your team about what equity means for them, including potential tax implications.

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Tax Risk Mitigation Chart

Tax Risk	Consequences	Key Mitigation Steps
Nexus and State Tax Compliance	Penalties, interest, back taxes	Annual nexus study Register in states Use Avalara or TaxJar Track deadlines
R&D Tax Credit Missteps	Missed credits, audits, penalties	Work with R&D experts Use Harvest or Jira to track R&D activities Maintain detailed project logs
International Tax Exposure	$10K+ penalties per form, legal exposure	Use global payroll providers Follow OECD transfer pricing rules File IRS forms correctly
Worker Misclassification	Back taxes, fines, lawsuits	Review classifications Use SS-8 Form Adopt an HR platform like Gusto or Justworks Consult your legal advisors
Equity Compensation Tax Issues	IRS penalties, employee tax surprises	Annual 409A valuations Use Carta to track options Educate employees File Forms 3921/3922 on time

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Unsure which tax risks your company is exposed to? Burkland’s tax team can help you perform a diagnostic review and build a compliance roadmap that evolves with your business. Contact us to learn more.