Tax filing errors cause delays in the filing, and can even result in penalties. It’s crucial to accurately complete your taxes without any errors. Make sure your business is ready for tax season before the deadline rolls around.
Filing taxes for your small business can be overwhelming, and plenty of business owners make mistakes every year. Let’s learn about common tax filing errors, so you can be prepared for next tax season.
Error #1: Choosing the Wrong Type of Business
Choosing your type of business is the most important decision you will make when you start a new business. There are several ways you can set up your business for tax purposes, but make sure to properly weigh each option.
Each type has its own benefits and drawbacks.
For instance, a sole proprietorship doesn’t require you to set up through the IRS, and they have the least bookkeeping. However, sole proprietorships have unlimited liability. Plus, you can’t take on any business debt in the form of loans.
As a general rule, choose the simplest business type that satisfies your company’s needs.
Error #2: Misreporting Income
It might be tempting to underreport your business’ income to pay less on your taxes. However, that choice will land you with hefty tax penalties and potential legal issues.
You should never underreport on your taxes. It can open your business up to lengthy audits and penalties. Overreporting is also a problem for businesses.
Many people accidentally overreport their business’ income by not properly accounting for the costs of the goods or services sold. Overreporting your income will leave you with a huge tax bill and a headache to match.
Error #3: Not Maintaining Tax Records Throughout the Year
Don’t wait until the last minute to get your tax records together. You should be keeping track of your financial and tax records throughout the year. Otherwise, you risk making careless mistakes when it comes time to file.
Make sure your bookkeeping team is keeping a close eye on expenses throughout the year. If you don’t track your expenses properly, you’ll have a hard time claim the deductions you deserve come April.
Error #4: Getting Behind on Estimated Tax Payments
Small businesses are often strapped for cash, especially when the business is just getting started. Make sure you stay on top of your self-employment tax, payroll tax, and income tax deposits.
It can be easy to get behind in these payments, especially when you’re managing so many different tax deposits.
Set up separate accounts to save for taxes, and immediately transfer your tax money into this account as soon as you receive it. It makes sure that the money for each type of tax is coming from the applicable gross income.
Avoid Tax Filing Errors with Professional Bookkeeping Services
As a small business owner, you have a lot to worry about on a daily basis. Downsize your responsibilities and hire a professional bookkeeping team.
Professional bookkeepers can manage all of your business finances for you. So, when tax season comes, you’re ready to file. Contact us today to find a bookkeeping or accounting package that is right for your business needs.