Tax season can be very stressful for small business owners. Mistakes can cause overpayment, penalties, and missing out on tax savings. Avoid these common small business tax mistakes and have no need to fear your next return.
Mixing personal and business expenses.
It might seem convenient to use one credit card for all your expenses, but doing so makes it harder to separate legitimate business expenses from personal ones. Manually categorizing expenses for every receipt can easily fall by the wayside during a busy season, leaving you with hours of expense tracking at the end of the month. You can end up with an inaccurate financial picture of your business if you are working from missing or inaccurate information and have a potential problem if your business should ever be audited.
Failing to pay or underpaying estimated taxes.
Business owners generally need to make quarterly estimated tax payments on their income if they expect to owe more than $1000 when their return is filed. If you fail to pay enough tax during the year through withholding or quarterly estimated payments, you may be subject to penalties.
Failing to deposit employment taxes.
If your small business has employees, you are required to deposit the taxes you withhold, plus the employer’s share, through electronic funds transfers by your given due dates. Late or incorrect payments are subject to additional penalties.
Just like with individual returns, filing your business tax return late comes with penalties. Due dates vary depending on the business type, so taxpayers should familiarize themselves with the requirements applicable to their situation.
Missing out on deductions.
Good recordkeeping and a great tax professional are key here. From the new Qualified Business Income Deduction to business expenses, depreciation, and mileage, there’s lots of opportunities to legitimately reduce your tax liability. The deductions available to you will depend on your business structure, and your accountant or tax professional can determine your eligibility for each.
Not using a tax professional.
It might be tempting to do your own bookkeeping and business tax return to save money, but you’re taking a big gamble. Mistakes or missed deductions or credits can cost you thousands when calculating your refund or tax due. A tax professional can help identify savings that you may not be aware of and can often save the business much more than the cost of their services. Should you ever receive an IRS letter or audit notification, your tax professional will be there to assist you. If your business has employees, an accountant or tax professional is even more essential to ensure your business is in compliance with all your federal, state, and local payroll tax laws.
The IRS strongly encourages small business owners to work with a knowledgeable tax preparer, like Bacon & Gendreau. We offer small business services year-round, including comprehensive tax planning, bookkeeping and payroll assistance, preparation of estimated tax vouchers, and preparation of federal, state, and local tax returns. Give us a call to set up an appointment.