Small business owners are responsible for a whole slew of taxes: state taxes, federal taxes, licensing fees, payroll taxes, taxes on miscellaneous income, etc. With all the details around taxes owed, tax forms, tax filing dates, and the rest of the red tape, you could end up spending more time on some days just working on the financial paperwork for your business rather than working on making that business successful. And we’ve never met a small business owner that wants to spend their time swamped in tax forms.
Here are six common mistakes small business owners make when filing taxes that can lead to IRS problems.
1) They don’t ask for help. Asking for help from a professional accountant when you need help can be a lifesaver. A professional tax preparation service can help you meet deadlines, provide accurate information by deadlines, and accept liability for filing taxes on time and accurately.
2) They mix business and pleasure. Maybe that’s a bit of an overstatement. After all, as a small business owner the amount of time you’re going to invest in your business tells onlookers that you had either better love what you’re doing or you’re going to spend a lot of time being miserable. But what we mean here is don’t mix personal with business, especially when it comes to finances.
For example, when you’re at the store, if you want to pick up a ream of paper for your business and cave to a personal impulse purchase near the check-out line, just ask the cashier to put them on separate receipts. Have business accounts that are separate from personal accounts, too, including a separate checking and savings account for your business.
3) Deduct those business expenses! The IRS tax code tells us a small business owner can deduct any and all “ordinary and necessary” business expenses from their taxes. Even if you work from home, you can designate some portion of rent and utilities (based on the area of your workspace used for business) as a business expense.
4) Track your expenses. This sounds simple, right? You would be surprised how many people lose receipts or neglect to track income and expenses. When should you begin preparing for a final exam? On the first day of class. And when should you begin preparing for filing taxes? On the first of the year. Don’t stop until the last day of the year. And don’t throw receipts away just because they’re for relatively small amounts of money. Those small expenses still matter.
5) Pay your taxes early and often. For individuals, taxes are due once a year but for businesses, you’ll want to file your taxes quarterly. Even if you can legally put off paying anything until the end of the year, four smaller payments over a long period of time will disrupt a small business cash flow less than one huge payment once a year.
6) Inaccuracies cost you money. If you misfile your taxes or file them late, you’re going to get hit with penalties. If you inaccurately report your income — especially if you report less than you actually made — it can cost you a 20% tax payment increase. Check those figures and double check them. Twice. Or let a professional do it for you.
Here at Roberts Tax Advisory, we work closely with small business owners, providing on time and accurate tax return information. For help or a consultation to figure out if our accounting services are right for your business, please contact us.