Small business tax mistakes can be costly. You work hard for your money. Why should you pay the government any more than you have to?
There’s a lot on your plate when you’re running a business, but ways exist to make sure you’re not overpaying or worse yet – getting audited!
Here are 6 small business tax mistakes and how you should avoid them.
1. Hire Someone to Avoid Small Business Tax Mistakes
Choosing to prepare your taxes by yourself may seem like a cheaper route, but hiring tax preparers can save you time and money because they know the tricks of the trade. They are also familiar with deductions – things like mileage and insurance – when filing tax returns that can save you money.
Hiring tax preparers also gives you peace of mind, especially should you be audited.
2. Missing Deadlines
Missing deadlines means paying additional fees on top of what you already owe to the government. And the longer you don’t pay, the penalties just keep piling up. You can file an extension if you don’t have the money to pay your taxes.
Set reminders for yourself where you do your small business paperwork. Don’t know the tax payment deadlines? Find out the tax deadlines by reading the IRS calendar.
3. Combining Business and Personal
Keeping business and personal expenses separate can be tricky, especially when mixing bank accounts and credit cards. The best practice is to have separate accounts for your personal and business expenses.
And if you must mix, be sure to keep perfect records. Use a filing system for different receipts, a booklet or an electronic app to keep track of mileage.
Think one pile here and one pile there so you don’t mix them up!
4. Quarterly Taxes
Develop a system to save enough for your quarterly taxes. Create a budget and know the timeline for submitting those funds to the government so that you’re not late!
You’ll owe less at the end of the year and if you overpay, you’ll get a return of some of that money in a tax return.
5. Withholding Taxes and Deposits
Pay employees a salary? You should be withholding FICA, income taxes, and unemployment taxes to the state and federal government. You must then report how much in taxes you filed for your employees.
You will pay significant penalties should you fail to pay.
Create a system with the proper paperwork, perhaps with software, to be sure you withholding enough money.
6. Organize Staff Correctly
Hiring both independent contractors and regular payroll employees is common, but their classification is not. Payroll taxes must be paid by the employer for employees, while independent contractors pay their own taxes. It means the difference between a W-2 form and a 1099 form.
How do you know what’s what? Independent contractors don’t receive overtime and do not qualify for unemployment compensation or workers’ compensation while doing business with your company. Employees receive those benefits, in addition, to possibly health care and paid vacation time.
Tax Mistakes Can Cost Your Small Business
Small business tax mistakes can cost you time and money. Choosing to not hire a professional can cause you to miss deadlines, confuse personal and business expenses, not saving for quarterly taxes, keeping track of withholding, and classifying staff correctly.
If you like these tips, be sure to check out our other articles!
Interesting related article: “What is Corporate Tax?”