7 Common Tax Time Mistakes Small Business Owners Make
Eliminating errors will keep more money in your pocket during tax time.
Small business ownership and tax expertise do not necessarily go hand-in-hand. And that’s OK -- as a care professional, your foremost focus should be on providing the best possible services and growing your business from the bottom up.
But what happens when tax season rolls around and you’re feeling unsure about filing?
To help minimize your tax woes, we’ve compiled some expert insights on the most common mistakes small business owners make – and how to avoid them.
1. Being Disorganized
Once you’ve made the jump from care professional to small business owner, you’ve outgrown the shoebox method of filing important documents. If you’re not already, start scanning receipts (photos work well, too) and logging them electronically.
If you’re using a program, such as Excel, be sure to back up everything regularly. Or you can use a cloud-based program like Google Docs. All hard copies should be filed as well, placing receipts and records in manila envelopes marked by month and year. Store them in a dry, safe place.
2. Seeking Advice From Only One Expert
When it comes to filing taxes (personal or for a small business), it’s important to ask more than one person for advice, as not all accountants and financial advisers have the same training or follow similar practices. What one accountant may know another may not.
“Reviewing is the key, but obtaining a second (or even third) opinion can open the door to ideas and expertise that the current accountant might not know or hasn't learned,” says Carlos Dias, Jr., a registered financial consultant.
3. Ignoring 1099s
Not having all the documentation needed to file all necessary 1099s can be a major hindrance when filing. “Business owners who do not have the tax ID and address of many of their service providers run the risk of either (1) not being able to take tax deductions for expenses that required a 1099 filing or (2) increasing the likelihood of an audit,” says tax attorney John H. Barkley, Esq.
It’s a simple fix. Small business owners just need to have independent contractors submit W-9s before the end of the fiscal year. “Try to hold off on filing income tax returns until you've received all the 1099s you expect to receive for the prior year,” suggests Barkley.
4. Filing Independently
Not working with an accountant well versed in small business matters makes the process more arduous than it needs to be. Working with an expert gives your business a competitive edge — and understanding things like the Affordable Care Act and how it will impact business isn’t something you’re likely to know. “Setting up retirement plans, having bonuses paid before the end of the year, and keeping track of income/expenses are just as important,” says Dias.
5. Doing Things Manually
The manual age is long gone. Automation saves small business owners time and money. Ask your accountant which program bests suits your company’s needs. One advantage is that most programs grant accountants access to your real-time data.
6. Filing Late
The old adage better late than never doesn’t apply to taxes. Missing deadlines means fees and penalties, taking money and time away from what matters most – building your business. But if you still can’t file on time, Barkley suggests that you go ahead and file and pay what you can afford. “You will still owe interest and penalties, but you will avoid a non-filing penalty and you will reduce the total amount that you will ultimately owe.”
7. Thinking About Taxes Only at the End of the Year
It’s best to continuously plan and think about how each transaction will be taxed and how it may impact other parts of a business' tax return. “Every single transaction in business has tax consequences,” adds Barkley.
Small business owners should ensure that they've accurately filed each form, correctly itemized deductions and write-offs, and seek guidance when not clear on tax related matters. Use these tips to get returns filed accurately and on time to achieve the most favorable results for your business.
Kayla Mossien is a writer for prominent blogs and websites and is the former editor-in-chief of PARENTGUIDE News.
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