1. Incorrectly Reporting Income
If you over or under-report your income, you could be facing an audit or in some cases, fraud charges. The occasional error is inevitable. But you can prevent future mistakes by keeping accurate reports.
The IRS will compare your reported income versus any payments reported made to you. Maintain your reports year-round. Always update your financial reports and any associated tax documents immediately. Keep detailed, accurate records of all payments sent and received.
2. Not Separating Your Expenses
When you run a small business, it can be easy to blur the line between business and pleasure. Unfortunately, the IRS expect between your personal expenses and your business expenses. Don’t blur the lines between business and personal. Keep meticulous records of expenses and receipts. Separate everything firmly, with no mixing or confusion.
If you take your car out to run errands, you can deduct mileage for a drive to the post office to ship customer packages. You cannot deduct commuting miles to and from your office every day. Let us help you with tips on how to separate your business from your personal financials.
3. Missing Out On Deductions
As a business owner, you have several allowable deductions, whether it’s supplies or daily printing expenses. If you’re starting a new business, you may be able to deduct up to $5,000 in startup costs. The amount you can deduct can depend on the type and size of your business.
Your best bet is to hire the right tax professional. A qualified tax professional can walk you through your expenses to determine what is or isn’t eligible.
4. Making Mistakes With Your Employee’s Work Status
Hiring employees places you in an entirely new bracket of tax complications. When you make a mistake calculating your IRS payroll deductions, consequences can be far worse than other mistakes you could make.
What you need is a clear grasp of employee and payroll taxes. Every figure needs to be exact when it comes to reporting wages paid to your employees. You also need to be clear on the type of employee you’ve hired. Are you working with 1099 contractors or W-2 employees? Do you know the difference? We can help!
5. Filing and Paying Taxes Late
Of all the critical tax mistakes to avoid, this one could actually cost you the most. If you file your taxes late—even if you file for an extension—you face penalties and fees that can stack up startlingly fast.
A payment arrangement can help mitigate this problem. However, you’re better off making quarterly or monthly estimated payments in advance. With quarterly estimated payments, you may even end up receiving a refund.
In the end, managing your business taxes is all about accuracy and accountability. As long as you strive to be open and transparent while maintaining excellent records, you can avoid many of the pitfalls that befall other small business owners.
Amy Psyhos is an Enrolled Agent and our Tax Resolution Manager. She personally assists potential and existing clients in having a better understanding of the resolution process. She evaluates each client’s financial information to identify available settlement options to best handle their IRS debt. As information is requested from the IRS, she gathers and prepares all of the necessary documents to ensure all IRS deadlines are met.