In the United States, a majority of small business owners spend over 41 hours on their tax preparation each year. Tax preparation can be complicated for a business owner and there are many mistakes that business owners make that can further complicate the process.
Learning more about each of these tax preparation mistakes can help you avoid them when filing taxes for your business. Do you want to learn more about business tax preparation and the common issues and mistakes companies make with small business tax preparation?
Keep reading this guide to learn about the top seven mistakes that companies make with their business taxes.
1. Filing the Wrong Form of Businesses
One of the most common mistakes that business owners make is filing their taxes through the wrong form of business. There are many different types of business structures you can choose from, including LLCs, corporations, and sole proprietorships.
Each of these business structures will affect the taxes that you pay, so it is important that you choose the right form of business.
The type of business structure you select will also determine what forms you need to file for your taxes. If you are unsure of what business structure would work best for you and your tax needs, you can talk with your tax preparation company to learn more about the benefits and drawbacks of each option.
2. Not Filing on Time
Tax deadlines are important to follow, but failing to file taxes on time is a mistake that many business owners make. Whether they forget about the deadline or simply don’t have the money to pay their taxes, failing to file taxes will result in a penalty.
If you are aware of the deadline but need more time to get your documents and payments in order, you can file for an extension. This way, you will have more time to file your taxes but you will not have to worry about any additional penalties or fines.
3. Mixing Business and Personal Finances
As a business owner, one of the most important tips you can follow is to keep business and personal finances separate. However, many business owners either don’t care about this rule or simply forget and commingle their expenses.
However, this can make tax preparation confusing. You will have to carefully go through each of your expenses to see which expenses were for your business.
In some cases, having your business and personal finances combined may lead to tax penalties and other serious issues. It is best to always have a separate bank account and credit card for your business finances to keep your records separate.
4. Forgetting Business Deductions
Deductions are an important part of business taxes that can help you lower the amount that you owe in taxes. This is beneficial for a business owner, as it can help you deduct all necessary business expenses.
Common deductions include office supplies, work-related travels, and even a portion of your rent and utility expenses.
To get the most out of your taxes and to get your maximum deductions, make sure you carefully track all of your expenses and maintain good financial records.
5. Skipping Quarterly Payments
Skipping quarterly payments is another common mistake that many small business owners make. Once you have been in business for a certain amount of time, you may be required to pay taxes multiple times a year.
It can be difficult to remember these filing dates, so it may be beneficial to work with a professional tax preparer to stay on top of your taxes.
Even if your business isn’t required to pay taxes quarterly, it is a good idea to pay taxes several times a year. This way, you can spread out your payments over a year rather than paying a large sum all at once.
6. Not Keeping Good Records
As a business owner, one of the most important things you can do is keep detailed financial records. This will make filing your taxes much easier when the time comes.
When you have accurate records, it will be easier for you to identify write-offs and deductions for your businesses.
Plus, it is essential that you have thorough records in the event that you are audited. This way, you can prove that you are entitled to the deductions that you took and prepared your taxes accurately.
Keeping good records will greatly simplify that tax preparation process and will ensure that your taxes are filed correctly and without any mistakes.
7. Not Working With a Tax Planner
Finally, failing to work with a tax professional is a mistake that can cost your business time and money. While you are able to do your taxes on your own, doing taxes for your business is not as simple as filing taxes as an individual.
Plus, it can take countless hours to file your taxes correctly. This can distract you from your other important business roles and your company may suffer from this.
Working with a professional tax advisor will ensure that your taxes are filed correctly and that your business is compliant with all tax regulations. They can also help you maximize your deductions to reduce the amount you owe on your taxes.
Need Help With Business Tax Preparation?
As a business owner, tax season can be overwhelming and stressful, which can make it easy to make mistakes. Learning more about each of these mistakes can help you prevent them when working on your business tax preparation.
If you need help with tax preparation for businesses and need a business tax preparer, Bennett Financials can help! We provide tax planning, tax resolution, and bookkeeping services that can help you keep your finances in order.
Contact us today to learn more about our services and to book a free consultation.