Hear that? It’s the sound of the clock, ticking down to Tax Day. It might sound like a doomsday clock if you’re running behind on getting your documents and information in order, but it doesn’t have to. As we count down to Tax Day, we’re going over the top 15 tax filing mistakes business owners commonly make, and how you can steer clear and breathe easier.
But first, a note about how the coronavirus is impacting tax deadlines: The Trump administration and the IRS have extended filing deadlines for both individuals and businesses. The 90-day extension is automatically applied, along with a grace period for paying your tax debt. You can read more about coronavirus-related tax implications from our Incfile experts.
If, as the IRS encourages, you’re still planning to have your business’s taxes filed by the original deadline, read on to be sure you aren’t making these missteps, and troubleshoot your tax documents while there’s still time.
Avoid These 15 Tax Mistakes
1. Getting a Late Start
Though this year’s extenuating circumstances mean you won’t need to panic over getting behind the eight ball, it’s always the best practice to give yourself plenty of time to prepare. Extensions are possible, but you have to be quick to file for them before the deadline or you’ll face hefty fines.
2. Ignoring the Difference Between State and Federal Filing
Federal tax law can change from year to year, but they remain the same no matter where in the U.S. your business calls home. State laws, however, vary widely and can have a significant impact on what you owe. Be sure you and your accountant understand the nuances of your state’s regulations and requirements.
3. Not Staying Up to Date on Tax Laws
You say you have a crack accountant keeping track of that for you? That’s great, but it still pays to understand how changes impact your business. Tax laws are somewhat fluid and can change dramatically from one year to the next. Stay up on the regulations to be sure you don’t end up owing more than you should.
4. Reporting Incorrect Income
Who knows how much your business made last year? Uncle Sam does! Underreporting or overreporting your income isn’t likely to gain you any major tax benefits, but it can open your business up to scrutiny from the IRS.
5. Letting Disorganization Reign
If your tax document file is actually the place in your wallet where you keep crinkled up old receipts, you need to rethink your organization strategy. Use an old-school filing system, or upgrade to a software program to easily store and manage your tax documents.
6. Picking the Wrong Retirement Plan
Business owners are often too busy to think about retirement, but if you haven’t started a savings account, the time is now. You want to choose one that sets you up for future success and may also provide you with a tax credit.
7. Neglecting to Claim Startup Costs
Can you claim your business expenses before the business even opens? In some cases, yes. In your first year, there are expenses that can be claimed, even if they were paid before the doors (either brick-and-mortar or the virtual variety) have opened. Your accountant can help you identify what pre-opening expenses are deductible.
8. Using the Wrong Accountant
Not feeling that spark with your tax person? Or maybe that person is you. If you’re DIYing your taxes or just feel at odds with your accountant, it might be time to part ways. Choose an accountant who understands your business and its specific needs.
9. Not Using an Accountant at All
It’s hard to break up with a CPA, but even harder to break up with yourself. However, if you have been acting as your business’s accountant, crossing your fingers and hoping for the best, it’s time to upgrade to a certified professional. This person can not only ease your burden come tax time, they may help reduce what you owe.
10. Failing to Track Expenses
If you want to maximize your deductions, it’s vital that you keep accurate and detailed logs of your expenses, including mileage, meals, travel and more. It’s best to designate time each month to log what you’re spending, so you can present your accountant with a comprehensive report at tax time.
11. Mixing Business with Pleasure
If you avoid this tax mistake, we promise your accountant will thank you. Mixing business and personal expenses is easy to do, but hard to untangle as the filing deadline approaches. Keep separate credit cards and bank accounts for your business needs, and make sure your receipts are kept separately, rather than allowing them to mingle with your daily personal expenses.
12. Missing Important Deductions
When it comes to tax filing, leave no deduction unturned. This is especially important for small business owners who may work frequently from home, travel to meet with clients or host business-related meals or events. Be sure you’re claiming all appropriate deductions, like your home office and mileage, to ensure the maximum tax benefit.
13. Not Paying Estimated Taxes
When you don’t have taxes taken out of your paycheck like traditional employees, you may be facing an eye-popping bill come tax time. Mitigate that by paying estimated taxes to the IRS on a quarterly basis. Use this tax form to determine what you may owe at the end of the year, and pay in increments, rather than one lump sum.
14. Forgetting to File an Extension
You won’t likely need to worry about this in 2020 due to the extended tax deadline, but if you’re running behind and don’t think you’ll be able to get your taxes filed on time, extensions are possible. The IRS accepts Form 7004 as an extension request, but you’ll need to make sure to get it submitted before Tax Day. Also, keep in mind, this allows you more time to file, but it does not extend your deadline for paying your tax debt.
15. Filing or Paying Late
If you don’t get your extension application in before April 15, you’re likely to face a penalty. Similarly, if your tax debt isn’t paid on time, you’ll make your business vulnerable to increasing fees and fines. The IRS has some good tips on how to avoid these penalties, which could mean the difference between sinking or swimming for some businesses. Bottom line: That old saying about death and taxes is true. So if you need help beating the deadline, check out some last-minute tax tips and get it in before the buzzer.
We know tax season can be overwhelming for many small business owners. We want to help meet your tax, accounting and bookkeeping needs. For an all-in-one solution, subscribe to our Annual Financial Services package today.