There were over 5 million new businesses created in 2021 all with the hope of becoming thriving success stories. However, that also means a lot of novice owners might encounter common business tax errors.
Are you a new owner struggling with your business tax returns? Business tax preparation can be a little tricky the first few times around, so it’s understandable.
But don’t fret, the following guide will explain how to avoid 5 typical mistakes when filing business taxes.
1. Ignoring Deductions
Many small businesses file their taxes themselves to save money but end up missing out on tax credits and deductions. These deductions add up quickly and can save business owners a lot of money in the long run.
You can deduct certain expenses and losses throughout the year. However, you must keep proper records of all your deductions in order to maximize savings on your taxes. Consider using an international tax advisor for proper planning.
2. Poor Record Keeping
Keeping hold of receipts can be overwhelming for new business owners but it’s crucial come tax season. You must conduct record-keeping daily so that things don’t get out of hand.
Mileage records are also commonly forgotten by small business owners. Always keep documentation for any business travels so that you can get deductions for the fuel used.
3. Not Reporting All Income
It might be tempting to under-report your income once you start profiting in an effort to avoid additional taxes. But this can get you in a lot of trouble and cost you a ton if you’re audited.
Expect to pay up to 20% of the under-reported income as a penalty. In severe cases, there might even be criminal charges. Both scenarios could spell disaster for an upstart company.
4. Employee Classification Errors
Make sure to classify your employees correctly if you hire freelancers, consultants, or independent contractors. You might think these types of hires save money on taxes, but it can create a lot of issues and penalties if documented incorrectly.
For example, those types of hires are considered regular employees if they work on-site or for set hours. Examine all staff carefully to determine their classification.
5. No Tax Organizers
Always use a tax organizer to ask crucial questions when preparing taxes each year. These questions cover the same sort of things the IRS might ask about your small business.
The questions mostly cover common business expenses throughout the year which is another reason to keep good records. It’s important to find answers to these questions in case of an audit and gives owners more time to prepare accordingly.
Avoiding Common Business Tax Errors
Now you know 5 easy ways to avoid common business tax errors and save money. Remember, it’s better to use outside help instead of trying to save a buck by doing your taxes yourself.
Document every expense and prioritize record keeping so that you get every deduction available. Report all of your income to avoid expensive penalties and use an organizer as a handy checklist.
Check out the business section of our site for more ways to save money and grow your business.
