Top 4 Tax Mistakes Small Businesses Make

Not Filing on Time

This is perhaps the most common tax mistake small businesses make. And it’s easy to understand how this happens. See, most small business owners are often so busy with the day-to-day operations of their business that they forget about or put off filing their taxes. However, this is a mistake that can cost you. You may be subject to late fees and penalties if you don’t file your taxes on time. In addition, if you owe taxes and don’t file on time, the IRS may charge interest on the unpaid balance. To avoid these mistakes, set aside time each month to work on your taxes and file them by the deadlines.

Employee Misclassification

Another common tax mistake small businesses make is misclassifying their employees. When an employee is misclassified, it means that they are not being taxed correctly. This can significantly impact the company in terms of taxes owed and penalties. The best way to avoid this mistake is to ensure all employees are correctly classified from the start. This includes understanding the difference between employees and independent contractors and ensuring that everyone is classified correctly on your tax forms.

If you are unsure how to classify an employee, it’s best to speak with a tax professional or accountant. Making this mistake can be costly for your business, so taking the time to get it right is essential.

Mixing Business and Personal Expenses

While it may be tempting to mix your personal and business expenses, doing so can lead to several problems come tax time. First and foremost, it can make it challenging to track and deduct business expenses. Additionally, personal expenses are not eligible for certain business tax deductions, such as the home office deduction. Finally, commingling personal and business funds can create problems if you ever face an audit. For these reasons, keeping your business and personal finances separate is essential.

Poor Record-Keeping and Organization

Maintaining good records is essential for any business, large or small. Not only does it help track income and expenses, but it also provides a paper trail in the event of an audit. Yet many small businesses make the mistake of lax record-keeping, which can come back to bite them come tax time.

These are just a few of the most common tax mistakes small businesses make. By being aware of these common mistakes, you can help ensure that your small business stays on the right side of the IRS.