When you run a small business, you have a limited employee base. This means that you can’t hire a full-time in-house expert for everything. Your people must wear multiple hats to help you operate.
According to the Small Business Administration, 99.7% of U.S. employer firms are made up of small businesses. You are not alone.
Mistakes happen, even in accounting. Since others are dealing with similar challenges to what you have, it is easier to identify what common business tax mistakes may occur. Identifying a common issue gives you a way to better predict something that could happen, so you are now equipped to avoid it.
The National Taxpayer Advocate states that every year, small businesses will spend 2.5 billion hours answering questions and preparing for their tax return. They also report that 70% of small businesses will employ a tax professional to help them submit their taxes.
Regardless of if you hire an outside professional, there are a few things that you need to keep in mind for tax season preparation. Here are six common mistakes you need to know about so that you can avoid them.
1. Filing Business Taxes Late
It is critical to file on time so you can save money. If you file late, you will incur a 5% penalty per month from the IRS. This will increase, too, until you send your return.
Plus, they will tack on a 6% interest penalty and a penalty for late payment. If you need more time, we recommend you request an extension for filing. If you get an extension, your business still must pay a portion upon the original date it is due.
Better yet, just file your small business taxes on time.
2. Not Issuing Payment for Estimated Taxes
For an S corporation, a sole proprietor, and those who are self-employed or have a partner, if you expect to owe over $1,000 when you file a return, the IRS requires estimated tax payments during the year. If you have a corporation that you expect to owe $500 or more, this rule applies to you, too. You can easily avoid running into an issue later by paying estimated taxes on time as you should.
3. Keeping Well Organized Financials
When you start a business, you could use Excel to track your income and expenses, plus receipts. As your business thrives, you will need a better system.
Financials must be accurate and up to date. You should keep them in one location so that you can make sound, informed decisions with taxes and cash.
4. Combining Personal Expenses With Business Expenses
Business and personal are two types of taxes. They cannot combine; they must be separate.
A simple way to keep track of this is by using different bank accounts for each and separate credit cards for each. Using two different accounts will help you organize better.
5. Forgetting to Track Expenses
You will want to submit all your expenses at tax time, and this means holding on to receipts. For instance, you will log the business miles that you drive with your vehicle. For certain business meals, only 50% are deductible.
Keep a log of your expenses so that you have a report to run off for tax season preparation.
6. Not Seeking a Professional
The biggest problem with not getting a professional to help you is that you risk costly mistakes and headaches. You don’t need expertise in everything. It’s times like these that you save money when you outsource, like using this service.
Stay organized on your side, gather the materials on time, and let an expert do the rest.
Common Business Tax Mistakes
Now that you are more informed about common business tax mistakes, you will be able to avoid them. Make sure that you file on time, pay your estimated taxes, keep good records, and seek a professional to assist you. This will all save you money in the long run.
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