Tax season is an annual rite of passage that can be stressful and nerve-wracking, especially for small business owners. Unfortunately, mistakes can happen — and when it comes to taxes, they can be costly.
The most common mistake people make is a simple math error. This can be anything from a subtraction to an omission of a number.
Not Completing Your Taxes on Time
If you’re relying on direct deposit for your tax refund, take some time to double-check the routing number and account information so that it goes to the right place. This is a common mistake that can result in lost money and headaches.
Rushing to file taxes at the last minute can cause mistakes that could incur penalties and fees. Avoid these errors by filing your taxes early and having a checklist to help you stay on track throughout the year.
Business taxes can be complex, and ensuring that your business complies with tax regulations while optimizing your tax position is crucial. Business Taxes by Denver Tax Advisor or tax professionals can provide valuable assistance in managing your business taxes effectively.
Many business owners miss out on deductions because they must remember to categorize their expenses and income properly. This is a costly mistake for businesses, and you can avoid it by keeping good records and being scrupulously honest when reporting your income.
Not Keeping Good Records
Keeping good financial records is essential to business bookkeeping, and failing to do so can lead to penalties. One of the most common mistakes is not maintaining adequate documentation for income, deductions, or credits claimed on a tax return. The IRS can penalize taxpayers without appropriate proof by charging a failure-to-file fee or even levying liens against property.
Another common mistake is not correctly categorizing expenses and recording mileage. Using credit cards or bank accounts that can separate personal from business transactions is the best way to avoid these errors. Using computerized systems to record and track expenses can also help prevent mistakes. These systems can prompt you to double-check all numbers and keep your information accurate. This can help you file taxes promptly and avoid fines or criminal fraud charges.
Not Taking Advantage of Deductions
There are many deductions that small business owners miss out on because they fail to keep track of expenses properly or don’t realize the expense is eligible for a deduction. Maintaining records of business-related transactions as soon as they happen helps prevent missteps that can lead to an IRS audit and penalties.
For example, the home office deduction is available to anyone who uses a space in their home exclusively for work purposes. It’s also possible to deduct specific bank and credit card fees and meals for staff meetings and office parties. Taking advantage of all the deductions you’re entitled to will help reduce your tax liability and increase your refund. This can be done quickly by using proper bookkeeping practices. Investing in software can also help eliminate errors and make filing easier.
Not Using a Bookkeeper
When a business doesn’t use good bookkeeping practices, it can get into serious trouble when tax season rolls around. Without accurate records, filing taxes, staying on top of insurance payments, and understanding the company’s financial health can be difficult.
Using an experienced bookkeeper can help Denver small business owners avoid common tax mistakes, such as missing deadlines or making costly errors. Besides helping business owners avoid these mistakes, a professional can save money by providing expert tax advice and filing services at affordable rates. This way, business owners can focus on their core operations and grow their businesses. Hiring a professional bookkeeper is worth the investment, especially for businesses that want to increase their take-home pay. It can also help them avoid penalties from the IRS.
Not Keeping a Separate Business Bank Account
If you mix your personal and business expenses, it can make things very complicated when taxes are due. Getting audited by the IRS is no fun, and even worse, if your numbers are a mess, it could lead to severe consequences for you and your business.
Keeping separate accounts can also help you avoid missing out on any tax deductions you might be entitled to. Small items like petty cash, office supplies, and even recipe ingredients for a charity dinner may all be eligible for write-offs!
Finally, having a dedicated bank account will make it much easier to sort your expenses when tax time rolls around. Identifying business-related purchases from those that aren’t will be much easier.
