One of the simplest mistakes is forgetting to fill out part of your tax form or entering incorrect information. Even one error could flag an audit or require you to re-file, which can cause late fees and penalties.
The most common mistakes on tax returns include:
Incorrect or missing SSN or employer ID numbers
Incorrect filing status
Computation errors for taxable income, withholding, and deductions
Withholding or incorrect estimated tax payments
Failing to sign/date return
2. Not filing or paying on time
If you miss the filing deadline for taxes, your business could face a 5% penalty per month. This fee will increase each month until you file the return. If you neglect to pay your taxes, the IRS will charge 6% interest and a late payment penalty of about .5% each month after the deadline.
If you need extra time to pay for your taxes, you should file for an extension. Don’t miss deadlines, or you’ll end up with even more owed money on your plate!
3. Incorrect expense tracking
The most important way to prepare your taxes for April is thorough record keeping throughout the year. Failing to properly track your expenses can be one of the costliest parts of your taxes (and the biggest headache).
If you don’t track and categorize expenses, you could miss out on deductions that could save your business a lot of money. There are a lot of deductions you may qualify for like furniture, supplies, advertising, equipment, licenses, mileage, and more.
Worse yet, inaccurate tracking could land you in hot water if the IRS audits you and you can’t substantiate expenses.
Make sure you keep all receipts for expenses, payroll, sales, and other costs. This makes potential audits easier and ensures you’re receiving any applicable tax breaks.
4. Not separating business and personal
Small business owners often pay out of pocket for a lot of business expenses. Blurring this line can actually create a problem when tax time comes around. It can be harder to prove business deductions, and you may misfile between your personal and business.
To avoid this, you should separate expenses by using separate bank and credit accounts, tracking and storing receipts separately, and paying yourself a salary rather than using business accounts to pay for personal expenses.
5. Not working with a professional
A lot of small business owners want to cut the expense of taxes by using tax software to do it themselves. This can work for smaller businesses, but you could still miss areas or deductions that a professional would catch. In most cases, working with a professional will actually save you a lot of time, money, and errors.
The tax process can be complicated and painful, so don’t do it alone. Start by downloading our Ultimate Small Business Tax Checklist to get started. The checklist walks you through step-by-step to organize your business taxes all-year long, so you can better avoid errors and streamline the filing process. Download the checklist here.
About the Author
Michael Coronado is the Vice President of Pronto Income Tax. When he’s not serving clients, he geeks out on current events and planning his next travel adventure.