For business owners, there are many responsibilities to take care of, like overseeing cash flow, employee management, and tax payments. Managing all these tasks on your own can be overwhelming. Additionally, it can lead to an increase of errors in financial records, tax payments, and preparation. Here are the top tax mistakes made by business owners when it comes time to prepare their taxes:
It is important to maintain accurate and complete financial records for your business. Incomplete or disorganized financial statements lead to issues that impact decision making. What’s more, errors and internal management challenges can also be a consequence. A lack of proper financial records means your tax return will more than likely be inaccurate. One way to avoid this is by hiring the right bookkeeper to do your monthly accounting. This can guarantee your business stays on track. It also assures financials will be accurate and organized.
When you claim deductions for business-related expenses, you must maintain records that justify the deductions. These documents are most commonly receipts and invoices. The most common deductions for business owners are business expenses and charitable donations. If you happen to get audited, the auditor will request documents to make sure the deductions claimed are backed up. Not having this information may result in additional taxes owed, penalties and interest.
Addressing potential tax liabilities is also known as tax planning. Tax planning is the process of organizing and managing financial matters in a way that minimizes tax liability. Without the guidance of a tax professional over the year, you might miss important steps for upcoming tax obligations.
Other common tax mistakes we’ve seen is improper classifications for employees and contractors. This can pose significant financial problems for your business. It can also generate issues when it comes time to prepare and file your business taxes. Specifically, inaccurate worker classifications has an affect on the amount you will end up owing. You can end up underpaying or overpaying taxes.
Failing to pay payroll taxes has serious consequences when it comes to the IRS. There are a variety of penalties the IRS may impose for non-payment of payroll taxes. Additionally, they have the authority to take aggressive collection actions, such as wage garnishment, which can impact the finances of business owners and executives.
Plain and simple, missing out on claiming tax credits your business qualifies for can lead to a higher tax liability. Understanding which tax credits your business is eligible to claim is the key to reducing the amount of taxes owed. Working with the right accountant is always the best idea when it comes to preparing your business taxes. A tax professional will know which tax credits to claim to lower tax liability for you.
There are several tax deadlines for businesses in a year. Estimated quarterly tax payments 4 times a year and corporate tax filing deadlines that depend on your business structure. Moreover, not being aware of when you should make quarterly tax payments or file your business’ taxes will lead to penalties, accrued interest and loss of deductions or credits.
Quarterly tax payments are required for businesses by the IRS. They ensure tax requirements are met by business owners. An immediate consequence of underpaying your estimated tax payments is penalties. This will increase your overall tax liability for the year. Interest can also be accrued for failing to make the proper payments on time. To make sure your business is compliant and benefits from tax credits, it is important to know you are paying the right amount every quarter.
How To Avoid These Common Tax Mistakes
Preparing taxes for your business on your own can have the potential for numerous tax mistakes. Those mistakes in this process can lead to challenges that affect your business’s financial well-being. As a business owner, the best approach to assure accurate financial handling is to seek guidance of a qualified tax professional. Consulting with the right accountant can alleviate the burden of maneuvering through the complexity of tax preparation and filing. The right tax professional offers expertise and assurance for your business’s financial responsibilities.