The new year is here, and it is never too soon to begin making arrangements and getting your ducks in a row for tax season. If you are a business owner, it can be easy to neglect proper tax practices, but to avoid legal trouble and penalties, you should avoid making these 6 mistakes.
Waiting until the last minute to scrounge up financials-
Let’s be honest. Procrastination is a skill. Harness it, and you can get a lot of boxes checked off of your to do list…except the one that needs to be done the most. Best to nip it in the bud and keep up those pesky financial records as you go. Keeping your invoices, receipts, financial statements, etc. as they come up instead of trying to find everything last minute from an unorganized pile on your desk is a recipe for lost or incomplete documents, and tax filing disaster. Failing to keep your records current can push you closer and closer to the danger of late penalties.
Mishandling payroll and employment tax-
The Internal Revenue Service informs us that, “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.” If an employer is failing to withhold the correct amount or reporting the wrong amount, then it’s a little more serious than just paying financial penalties. Getting this part wrong, rightfully so, can incur criminal charges since it affects the welfare of your employees.
Underpaying or filing incorrectly-
This one may seem extremely obvious, but it is one of the most common mistakes. Over estimating deductions, unorganized records, and mishandling payroll can all lead to underpayment. Regardless of whether it was purposeful or accidental, underpaying or even failing to file can incur fees on top of paying the difference in what you owe. According to the IRS, “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.” Another easy mistake to make in this category is sending incorrect forms of payment or filing the incorrect forms. We advise working with an accountant to make sure that everything is filed promptly and correctly. Since young and small businesses are often strapped for cash, if you aren’t going to file quarterly, then you should set aside a little each month to save for taxes.
Failing to keep business and personal expenses separate-
We have covered this topic before in our article, “Most Common Bookkeeping Mistakes”, but it is worth repeating. Opening up a checking account for your business is an extremely easy process that can save you time, money, and headaches when sifting through your statements in tax season.
Choosing the wrong form of business-
Everyone has advice to offer on what type of business you should file as. The truth- as difficult as it is to hear- even though there is less liability as a corporation, your 1 year old side hustle making candles for your neighborhood is not ready to undertake the requirements and fees that are required for corporations. According to TaxAct.com, “The truth is, there is no form of business that’s perfect for everyone. Each business structure handles taxes a little differently.” On the other hand, if you want to limit your exposure to liability you might choose a limited liability company (LLC) — although LLCs don’t always limit liability as much as you might think. We advise talking to your accountant to figure out which form of business works best to protect your assets.
Failing to claim all proper deductions-
In contrast with what we discussed under point 3, working with a professional tax accountant can help you take advantage of all available deductions, some of which you may not be aware of. Don’t miss out on free money. Have a professional help you get the most out of this tax season.
Contact Omnis for more information on filing your taxes the smart and headache free way.