Running a small business is like playing in a complex computer game; committing mistakes is part of it, and everything must work together smoothly. You must manage customer relationships, keep employees happy, create marketing plans, manage inventory, and handle taxes. With so much on your plate, missing important tasks is easy. However, even a small mistake can lead to big financial problems during tax season.
Our firm has helped many small business owners fix costly tax mistakes, giving them peace of mind and better financial understanding. The good news is that with smart planning and expert support, you can avoid many of these issues.
Here are the seven most common tax mistakes small business owners make, along with simple strategies to help you avoid them.
1. Mixing Personal and Business Finances
The Mistake:
Using your personal credit card or bank account for business expenses can lead to confusion when preparing your taxes and may attract unwanted attention from the IRS. Mixing personal and business finances makes it hard to track your expenses accurately, which could result in audits or penalties.
How to Avoid It:
Open separate business accounts and keep all business income and expenses isolated. This helps ensure accurate bookkeeping and makes deductions easier to track.
2. Forgetting About Estimated Taxes
The Mistake:
Employees benefit from having their taxes automatically taken out of their paychecks. In contrast, business owners must manage their tax payments themselves by making quarterly estimated payments. If they miss these payments or get the amounts wrong, they can face significant penalties. This highlights the need for careful financial planning and monitoring for entrepreneurs.
How to Avoid It:
Work with a Certified Public Accountant (CPA) to estimate your quarterly taxes and set calendar reminders for payment deadlines.
3. Not Keeping Proper Records
The Mistake:
Misplacing receipts or neglecting to accurately document your income and expenses can significantly restrict your eligible deductions, ultimately putting you at risk during an audit. Keeping meticulous records is essential for maximizing your tax benefits and safeguarding yourself against potential scrutiny from tax authorities.
How to Avoid It:
To keep your finances organized throughout the year, consider using reliable accounting software or hiring a professional bookkeeper. This will make managing your finances easier and allow you to focus on your main work. Make sure to keep digital copies of all your receipts and group your expenses consistently. This will help you track your spending and ensure you have everything you need for accurate reporting and budgeting.
4. Overlooking Deductions
The Mistake:
Many business owners often miss out on valuable deductions. These include the mileage from business travel, the part of their homes used for a home office, and expenses from starting their businesses. Knowing about these deductions can help improve their finances and overall financial strategy.
How to Avoid It:
Consult with a tax expert who is knowledgeable about deductions for small businesses. Here at JoQuin Associates, we help our clients take advantage of every deduction they’re eligible for without crossing any lines.
5. Misclassifying Workers
The Mistake:
Hiring independent contractors while treating them like employees can create major tax issues with the IRS or the Department of Labor. Misclassifying workers can lead to legal problems, audits, fines, and back taxes, putting your business’s financial health at risk.
How to Avoid It:
Understand the key differences between an employee and an independent contractor, as these roles affect both parties significantly. Employees usually have a steady relationship with their employers and receive benefits like health insurance and retirement plans. On the other hand, independent contractors have greater flexibility since they determine their schedules and workload. If you’re unsure about these differences, it’s vital to seek expert advice before making hiring decisions to ensure you follow the rules and best practices in your recruitment process.
6. Waiting Until The Last Minute
The Mistake:
As tax season approaches, the pressure mounts. You find yourself racing against the clock, desperately trying to gather all your financial documents and receipts. In the chaos, you’re worried about overlooking valuable deductions or, worse yet, missing the filing deadline altogether. The weight of anxiety looms as you strive to ensure everything is in order while the clock ticks down.
How to Avoid It:
Stay proactive with regular financial check-ins. Mid-year tax planning helps reduce surprises and gives you time to make smart financial moves before year-end.
7. Trying To Do It Alone
The Mistake:
While tackling DIY tax preparation may initially appear to be a clever way to save money, it’s important to recognize that even a minor mistake can end up costing significantly more than enlisting the help of a professional.
How To Avoid It:
Think about getting specialized help for your business. A Certified Public Accountant (CPA), like the team at JoQuin Associates, can offer great support. They can help you find ways to save money, follow important financial rules, and reduce the stress of managing your finances. With their knowledge, you can concentrate on growing your business while we handle the numbers.
Final Thoughts: Make Taxes Work For You.
As a small business owner, you already have a lot to manage. Don’t let taxes become a costly afterthought. Avoiding these common mistakes and working with a trusted advisor, you can protect your business, keep more of what you earn, and focus on what you do best, running your business.
Need a tax strategy that works year-round?
JoQuin Associates offers expert support for small business owners who want peace of mind and proactive planning. Get in touch with us today to schedule your consultation.