Taxes are a complex and often confusing topic for small business owners. There are many different tax rules and regulations that businesses must comply with, and it can be easy to make mistakes says Aron Govil.
This article will discuss 13 common tax mistakes that small business owners make.
1. Not Filing Taxes on Time
One of the most common tax mistakes that small business owners make is not filing their taxes on time. The IRS requires businesses to file their taxes by April 15th each year. If you fail to file your taxes on time, you may be subject to penalties and interest charges.
2. Failing to Pay Taxes Owed
Another common mistake is failing to pay taxes owed. If you do not pay the full amount of taxes owed, you will be subject to penalties and interest charges. It is important to make sure that you have enough money set aside to pay your taxes in full.
3. Not Keeping Good Records
Small businesses are required to keep good records of their income and expenses. This includes keeping receipts, invoices, and bank statements. Good record keeping will make it easier to prepare your taxes and avoid mistakes.
4. Claiming Personal Expenses as Business Expenses
One mistake that small business owners often make is claiming personal expenses as business expenses. Business expenses must be ordinary and necessary for the operation of the business. Personal expenses, such as vacations or clothing, cannot be deducted as business expenses.
5. Failing to Pay Estimated Taxes
If you are self-employ or have other income that is not subject to withholding, you are required to pay estimated taxes. Estimated taxes are due four times per year and failure to pay them can result in penalties explains Aron Govil.
6. Claiming Invalid Business Expenses
There are many different business expenses that can be deducted, but not all of them are valid. Make sure that you only claim business expenses that are necessary and ordinary for your business.
7. Not Keeping Track of Mileage
If you use your personal vehicle for business purposes, you may be able to deduct the mileage on your taxes. However, you must keep track of your mileage and have a good record of your business travel.
8. Taking Unreasonable Salary Deductions
If you are a sole proprietor or LLC owner, you may be able to deduct your salary as a business expense. However, the IRS has rules in place regarding how much of your salary can be deducted. Taking an unreasonable deduction can result in an audit.
9. Claiming 100% Business Use of a Vehicle
If you use your personal vehicle for business purposes, you may be able to deduct the expenses related to its use. However, you can only deduct the percentage of use that is business-related. Claiming 100% business use of a vehicle can raise red flags with the IRS.
10. Deducting Home Office Expenses Incorrectly
If you have a home office, you may be able to deduct certain expenses related to its use. However, there are strict rules in place regarding what expenses can be deduct. Deducting home office expenses incorrectly can result in an audit.
11. Failing to Depreciate Assets
If you have any business assets that are use for more than one year, you must depreciate them over time. This means that you cannot deduct the full cost of the asset in the year it was purchase. Failing to depreciate assets can result in an audit explains Aron Govil.
12. Making mistakes on payroll taxes
If you have employees, you are responsible for withholdings and paying payroll taxes. Making mistakes on payroll taxes can result in penalties and interest charges.
13. Filing a Business Return Incorrectly
There are different types of business entities, and each one has its own tax return. Make sure you file the correct return for your business entity type to avoid penalties and interest charges.
Taxes are a complex and often confusing topic for small business owners. However, it is important to make sure that you comply with all tax rules and regulations says Aron Govil. This article has discussed 13 common tax mistakes that small business owners make. Avoiding these mistakes can help you save money and avoid penalties.