Editor’s note: This is a guest blog post written by PJ Taei found of UScreen.tv
1. Hide Income
If your video production, artisan bakery or dog rescue business receives cash payments, remember to track this income. All income must be reported to the IRS.
2. Mix Business and Personal Expenses
As a business owner, you may accidentally mix business and personal expenses, which can cause you to file an incorrect tax return. To keep these two accounts separate, use only your business bank account and credit card for business purchases, and reserve your personal bank account and credit card for personal expenses.
3. Miss a Filing Date
You will owe late fees if you miss a filing deadline. To save money, know the filing dates for your specific company and complete your taxes on time.
4. Forget to pay Estimated Tax Payments
Individual taxpayers, including sole proprietors, partners and S corporation shareholders, must make estimated tax payment if they will owe $1,000 or more in taxes. If your business must make quarterly estimated tax payments, budget for this expense and don’t forget to file. You will owe a penalty for skipping estimated tax payments, which increases your overall tax bill for the year.
5. Misclassify Employees and Contractors
Independent contractors can enhance your business and cut expenses since you don’t have to deduct payroll taxes, provide workers’ compensation or offer benefits to these individuals. However, always correctly classify employees and contractors. A misclassification will result in penalties and interest, and you will owe past-due employment taxes.
6. Mess up Payroll
A single payroll mistake can affect your taxes, so double check that you correctly calculate payroll details. If possible, hire a payroll specialist or use payroll software to prevent errors.
7. Keep Poor Records
Your business relies on good recordkeeping, but it’s easy to misplace a critical receipt or forget to enter data in your expense spreadsheet. Implement a solid recordkeeping system and use it to track expenses, inventory and payroll. Good records, whether you file papers in a filing cabinet, use an app to track receipts or utilize accounting software, help you file an accurate tax return and avoid costly penalties and legal expenses.
8. Miscalculate Deductions
Most businesses take at least a few deductions for office supplies, internet fees and employees. However, all your business deductions must be ordinary (common and accepted) and necessary (helpful and appropriate). Take care when calculating your deductions to ensure you deduct only legitimate expenses and deduct all the expenses you are qualified to take. The most commonly overlooked business expenses include depreciation, out-of-pocket expenses and auto expenses.
9. Take a Partial Auto Deduction
You can take a standard auto deduction based on the miles you drive for business or use actual expenses. In many cases, your deduction increases if you calculate actual expenses, which include fuel, insurance and repairs. Compare both options as you ensure you receive the largest possible auto deduction.
10. Skip the Office Deduction
A miscalculated home office deduction can trigger an audit, but don’t let that keep you from making this tax deduction. If you use your home office as your principal place of business, as a meeting place or exclusively for business purposes, you can legally deduct it.
11. Choose the Wrong Accountant
As a business owner, you rely on experts to help you manage finances, prepare presentations and market your business online. Consult an accountant, too. Your accountant should be well-versed in business taxes, honest and available for questions and other issues.
When preparing to file your business taxes this year, be aware of 11 common mistakes. Then take steps to avoid these costly mistakes and file an accurate tax return for your company.