Americans often get stressed out when tax time rolls around, and small business owners feel that crunch even more. If you’re like many people, you probably don’t think you have the required tax law knowledge to maximize your benefits, yet decide to do your taxes yourself anyways to save a few dollars.
Unfortunately, this is a very bad idea, since as a business grows, the complexity of associated tax issues usually grows too. With COVID affecting businesses of every shape and size, several tax and business relief programs are currently available. As such, it’s more important than ever for you to have a tax strategy, as well as ensure you are compliant with tax laws.
The most effective way to avoid crossing the line with the IRS is to use a seasoned small business tax professional, such as a CPA or an EA. These individuals can help at tax time, as well as year-round, by guiding you with best practices and proactive steps to minimize tax debt, as well as tap into federal business lending and grant programs.
If you filed an extension this year, here are some common business tax mistakes you’ll want to avoid at all possible costs.
1. Don’t Do Your Business Taxes Yourself
If your business is very small, it’s not impossible to do your own taxes. But as it grows, the tax complexities can snowball quickly. You’re much better off hiring a tax professional, who will have seen all your issues thousands of times before and can solve them faster than you. The cost of their services will be covered by the savings they help you achieve, not to mention the peace of mind you’ll get from filing your taxes properly.
2. Don’t Miss Out on Tax Breaks
The tax code is huge, and is constantly being added to. That means there are many tax breaks for small businesses that you will probably miss out on if you don’t know where to look. Missed deductions and tax credits can cost thousands. Whether it’s deductions for a home office, business use of a vehicle, or simply writing off business expenses, these little things can really add up, and are critical to a successful tax strategy.
3. Don’t Forget to Pay Quarterly Estimated Taxes
If a small business owes $1,000 or more after they’ve computed their tax return, the IRS will usually insist on quarterly estimated payments for the next year being escrowed to cover potential tax payments. The IRS likes us to pay in advance, similar to employees who have to escrow their funds too. Missing the estimated tax payments can result in fines and interest owed, so keep a close eye on the calendar.
4. Get Organized
If your books are a mess, it will be nearly impossible to file your taxes properly, and even more challenging to defend yourself or justify your numbers in the event of an audit. Using a comprehensive business management platform, like BQE CORE, gives you the ability to conveniently store all of your business data in a single centralized location. This includes not just income, but also expenses that range from overhead and utilities to employee costs, travel, mileage, and expensive items. And with digital receipt management, BQE CORE makes data quickly accessible via dashboards and reports that both you and your tax professional will appreciate.
5: Stop Commingling Accounts
Paying for business expenses with your personal credit card may seem harmless, since you’ll just pay yourself back from the business tomorrow, right? Wrong! Please, stop this Insanity! When you commingle your personal and business accounts, it can create confusion during tax time, since it makes it hard to distinguish legitimate company expenses from personal expenses. Commingling also makes it more difficult when analyzing company financials. The bottom line: don’t do it!
