Don't Make These 8 Common Tax Mistakes
Don't Make These 8 Common Tax Mistakes
In both business and race car driving, it pays to look down the road so you don't hit a speed bump.
The same logic applies to taxes. When you see them ahead, you can make adjustments and maneuver accordingly. However, when you don't realize they're coming, you're more prone to making errors that can take the air out of your tires.
Here are eight common tax mistakes you don't want to make as a business owner.
1. Waiting Until the Last Minute
Tax season has a way of creeping up on you unexpectedly. When you wait too long to get started, you're going to rush. And, when you rush, you're more likely to make mistakes. Be sure you get your business information together early. This includes updating income records and gathering expense documents and receipts. It also means you should send out any W-2s and 1099s you owe to any employees or contractors.
2. Shorting Your Income
Nothing makes an Internal Revenue Service (IRS) auditor salivate more than unreported or underreported income. Make sure you report every dollar of taxable income you make, even if it involves merchandise you sold to your mom or a service you provided to your next-door neighbor. Not doing so can raise a red flag that puts your business clearly in the sights of federal, state, and local taxing authorities.
3. Erring in Crunching Your Numbers
When calculating your taxes, errors are easy to make. But moving even a single decimal point can have a big effect on your tax liability. Make sure you check—and double-check—your math before you file your return. Good tax accounting software can help you avoid the simple mistakes you may make using pencil and paper. Plus, you have better things to do with your time than to be responding to math error notices from the IRS.
4. Not Claiming All Your Deductions
Your business may be entitled to specific tax deductions that can greatly reduce your tax bill. If you don't claim these, your business could pay more than its fair share of taxes, which could have a major impact on your bottom line.
Whether it's business mileage or loan interest, home office costs or employee expenses, be certain to take advantage of every business deduction you can. Also, you may qualify for a 20% deduction on qualified business income, new in the 2018 tax year.
5. Failing to File for an Extension
As the deadline for tax filing for your small business approaches, you may think that being a few days late is no big deal. But filing late is a sure way to incur late filing penalties that can really add up. If you need more time, make sure you request an extension to file before the deadline. It's easy to do and will give you up to six additional months to submit your tax return.
6. Neglecting to Pay Estimated Taxes
Even if you request an extension to file your business taxes, you still need to pay by the filing deadline any taxes you think you will owe. If you don't, you will likely incur penalties and interest. Make sure you estimate the tax you believe you will owe and remit payment. This goes for quarterly estimated taxes as well. By staying on top of these deadlines, you can avoid paying more later.
7. Ignoring Tax Law Changes
From time to time, tax laws change, as they did in a major way in tax year 2018. For instance, did you know that you can no longer take a business deduction for entertaining clients with tickets to a ball game or concert? Knowing the tax laws and following them are part of any responsible business owner's required tasks. Make a point to brush up on current tax laws, so you can more accurately complete your tax returns.
8. Refusing to Ask for Help
Sometimes you just can't do it all. Asking for tax help can save you time and money, freeing you to concentrate on your business and on keeping your customers and clients happy.
Have questions for a tax adviser? LegalZoom provides access to tax professionals through a prepaid advisory plan. You get advice on an unlimited number of new tax matters, along with many other benefits for a low monthly fee. You also can sign up for a free tax consultation with 1-800Accountant directly.