Common mistakes business owners make while filing taxes
Business owners wear multiple hats as they manage their time between marketing, hiring, customer service, and operations. Sometimes, tax matters get neglected amid all these responsibilities, and tax errors escalate into audit risks. Accurate Tax & Bookkeeping discusses the most common mistakes business owners make during tax preparation.
1. Losing track of relevant documents
Planning ahead of tax preparation involves collating and saving electronic and hard copies of all relevant documents. These documents play an important role in determining the tax liabilities and credits. If a system or habit is created from day one to file these documents, business owners may never have to struggle with missing information and consequent tax troubles.
2. Not tracking expenses accurately
Tax deductions become very difficult and confusing if there is no record of the expenses incurred. Business owners must be very careful about saving every business-related expense such as receipts and travel logs for mileage.
The most accurate and convenient way of tracking expenses is by working with a small business bookkeeper. A bookkeeper can streamline the complete tax process from start to end and ensure that expenses records are accurate.
3. Mixing business and personal expenses
It is always a smart idea to keep business and personal expenses separate by maintaining (and using) separate bank and credit card accounts, saving receipts separately, and paying salary to oneself instead of drawing directly from the business accounts. Being organized and accurate about these personal and business expenses helps save time and money when the tax filing season arrives.
4. Inaccurate information on the application
The information on tax applications must be in tandem with the IRS records. Facts such as name, date of birth, and filing status must be accurate. Referring to the previous year’s returns and SS cards helps to confirm that the data entered is right.
5. Incorrect classification of business activities
Accurate classification of income and investments is necessary to calculate the tax payable. The right form is determined by the legal structure of the business, the type of industry, and the presence or absence of employees. Any errors in the classification of business activities can lead to misinterpretation and incorrect tax filing.
6. Underestimating and underreporting taxes
Most businesses are required to make quarterly tax payments based on the estimated tax bill of the year. Substantial underreporting of estimated taxes can lead to up to a 20% penalty by the IRS. It is important to not underestimate or underpay, even by mistake.
7. Not depositing employment taxes on time
Businesses that have employees are responsible for depositing the taxes that have been withheld besides the business’ share of these taxes. Delay or negligence in these deposits can lead to penalties.
8. Not taking proper deductions
Expenses that exceed the business’ income over several years or show certain expenses that are outside of common percentage is usually a red flag for the IRS. Incorrect deductions are an invitation for an audit or a penalty. At the same time, legitimate expenses that are deemed ordinary and necessary to run a business by the IRS also need proper receipts for documentation.
9. Not consulting an accountant
Saving the expense of hiring an accountant by managing the business taxes internally or with the help of business tax software may not prove to be so profitable in the end. For complex businesses especially, it is worthwhile to hire an experienced accountant who can ensure that all deductions, credits, forms, and documents are in place. Any misinterpretations and mistakes are eliminated with professional tax preparation and bookkeeping services.
Accurate Tax and Bookkeeping has substantial experience in handling tax preparation and filing processes for small businesses. The team ensures that there is no stone left unturned when it comes to accurate tax filing.
Accurate Tax & Bookkeeping Services specializes in handling financial needs for businesses of all sizes.
Greg J. Menia founded the tax preparation service company in 2010, having worked in business tax services since 1995. The team performs tax services for small businesses and large businesses alike, serving all areas around Tampa, FL.
Call (813) 655-9702 today if you find yourself searching for “accountants near me” in Brandon, Florida. Alternatively, contact Greg and the team at Accurate Tax & Bookkeeping Services by emailing [email protected] or visiting the offices at 710 Oakfield Dr. Suite 159, Brandon, FL 33511.