Avoid These Small Business Tax Mistakes
Running a small business can take up a majority of your time and thoughts. After all of the hard work you put into keeping it afloat, the last thing you want is a hiccup in the business due to a simple tax mistake. To help avoid this issue in the future, we have compiled a list of common small business tax mistakes and how you can best avoid them.
Keeping Poor Records
One of the most common small business tax mistake involves keeping poor records. This is the worst thing you can do for your business. You need to keep good records so that when tax season rolls around you are reporting the proper income, naming the right deductions, and writing off the proper items. You should be saving receipts, invoices, and other important documents that can support anything listed on your return.
Incorrect reporting of information that has been reported to your business is also a common small business tax mistake. For example, computers at the IRS will match information found on a 1099 to the information supplied on a return filed by a taxpayer. If this information does not match, someone down the line made a mistake and you will be hearing from the government.
Did you know that certain items can be carried over from one year to the next? This is an important mistake all small businesses should avoid. For example, you might not have been able to claim the full home office deduction one year due to income that was too low. Well, the remaining deduction can be carried over to the next year. Take advantage of this in order to get as many tax benefits as possible.
Many small companies won’t even think twice about a mistake such as misclassifying employees. If you have independent contractors working for you, make sure they aren’t technically labeled as employees. If you are wrong when it comes to classifying employees, your business could be subject to major payroll penalties.
Small businesses have been known to over report income. This is a common, and honest mistake, especially when the businesses sell items that charge sales tax. Many businesses will unknowingly count the sales tax as part of their income. This should not be the case. Always deduct the sales tax from your final income before filing.
It’s a common mistake, but one that should never happen. How can you file late if you know when tax day is each year well ahead of time? Most returns filed late occur when businesses don’t have the money available to pay their taxes. A penalty will be assessed until the return is filed. Never delay the filing of your company’s taxes because you cannot pay what is owed. Instead, pay in small amounts using a payment plan.
Are you worried about making a tax mistake within your small business operation? Contact the experienced team at Tobin & Collins today to discuss your business and how you can avoid costly tax mistakes.