Whenever tax time comes around, being a small business owner can be stressful.
You have to keep track of tax deadlines, distribute your employees’ income statements, and complete your business and personal tax return all at once.
With that in mind, you may slip up and make a few tax errors. Here are some common mistakes and how to avoid them.
Underpayment of estimated tax
If you’re a small business owner or earn self-employment income, you’re essentially not paying taxes for your earnings. As a rule of thumb, if you know you’ll owe more than $1,000 in taxes ($500 for corporations), you must make estimated tax payments.
If you don’t pay enough taxes through your quarterly estimated tax payments, the IRS will subject you to penalties. For example, the 1040-ES form helps you figure your estimated taxes as well as the payment due dates.
Having employees come with many responsibilities. That being said, they must deposit taxes they withhold on top of their share of those taxes. In other words, this means federal income taxes, social security and Medicare taxes for both the employer and employee.
However, depositing those taxes on time is crucial. Otherwise, penalties become a source of worry. It would be in your best interest to ensure that all electronic funds transfers are accurate.
Avoid filing late
Just like your individual tax returns, you will need to file your business taxes on time. For instance, you will need to stay updated on the business filing tax deadlines based on your type of business.
Tracking your business expenses
A common mistake is not separating personal and business expenses. Not only is this a crucial mistake, but it causes confusion when finding and missing deductions to report, and also cost you deducting your expenses in the long run.
You should be using a card only for your business expenses just in case you get audited. The IRS can disallow expenses if you cannot support which expenses are legitimate business costs.
Are you on track with your taxes?
We can help you take care of your personal and business tax returns. All you need to do is enter your tax information and we provide you with a printable version of your tax return.
(Additionally, don’t forget to find out how to prepare for the 2020 tax season changes by clicking here.)