Four Costly Tax Errors That Small Businesses Must Avoid
Small business owners should not view doing their taxes as just another item to cross off their to-do list, the IRS advises.
That’s because it could leave you open to mistakes when filing and paying taxes.
Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can also leave businesses open to penalties.
The IRS encourages small businesses to explore using a reputable tax preparer—including certified public accountants, enrolled agents or other knowledgeable tax professionals—to help with their tax situation.
Filing electronically can also help avoid common errors.
Being aware of common mistakes can also help tame the stress of tax time
Here are a few mistakes small business owners should avoid:
- Underpaying estimated taxes. Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.
- Depositing employment taxes. Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers. If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.
- Filing late. Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.
- Not separating business and personal expenses. It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.
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