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Making Nice with the IRS: Top Tax Mistakes Small Business Owners Make

Most entrepreneurs and small business owners don’t like to think about taxes. It’s something they often put off until the last minute or pay someone else to handle, but you need to change that type of thinking if you want to stay up to date on your taxes and pay less. There are all kinds of tax ramifications if you’re not on top of your taxes or make unknowing mistakes. There can be some trouble later if you haven’t made taxes a priority, too.

Business tax mistakes

Avoid These Top Two Most Common Tax Mistakes

There are a lot of mistakes out there that you can easily avoid just by being knowledgeable about the subject. The first mistake is that lot of small business owners think they can do it all on their own. This is admirable because a lot of small business work is done solo by its owner. However, when it comes to taxes, it’s a good idea to call upon some extra help if you lack the expertise.

If there’s one area you should look towards outsourcing, it is taxes. You’ll need a tax lawyer, who can tell you about your business taxes, advise you and help you save money for the future of the business. Hiring a lawyer or CPA are some of the best things you can do for your business. Tax planning is something they’ve trained on for years and they know more about them than any businessperson.

The second mistake is not saving and organizing tax receipts and paperwork. A fundamental part of taxes is having strong bookkeeping skills. You should be able to keep all your receipts organized in a type of tax diary. An accurate organizer goes a long way and will help you answer any IRS requests or inquires, if the need arises.

Filing is a great way to keep you informed, while organizing your tax records. It also helps a lot when it comes to tax time, so you can quickly and easily gather the correct documents, receipts and expenses to your tax professional.

Keep Your Tax Money in Check with the Right Withholdings

Many people are happy when they receive a large refund from the IRS. Most of the time, this means they have been giving the government interest-free money for the past year. You want to adjust the withholding of your taxes, so that you’ll get a small refund back, instead. This is where a tax professional comes in handy, as they can guide you in the number of exemptions and withholdings to take.

For businesses with employees, never put your hand into the trust fund you need to use to pay employee withholding and social security tax money. This money is meant for the government, so you can get into a lot of trouble with tax penalties and fines. Make sure you’re wise with the money you’re spending, saving and delegating for tax purposes.

Doing taxes

Payments and Taxes Depend on Your Employees and Business Structure

Employees will end up costing you more in taxes compared to an independent contractor, but making everyone a contractor may not be appropriate for your business model. The IRS can determine if you have mislabeled an employee over a contractor, as they work their own hours and determine when they complete the work. If you’ve labeled someone the wrong way, there can be some additional tax penalties if the IRS finds out.

If you have structured your business as a corporation, you must be careful how much you pay yourself. If you were to pay yourself a certain amount per year and then drastically raise that the next year, you may have to show the reasoning behind the large increase. The tax rules here can get a little bit messy, so it’s smart to consult a tax professional before proceeding.

Deductibles, Deductibles Everywhere You Turn

Many business owners are surprised to see the amount of expenses that are tax deductible. To be sure you can deduct something, save your receipts and bring them to your accountant. There are clever ways to figure out if you can deduct certain items, and your tax professional or accountant can be a huge help to you.

These itemized deductions will act as a two-fold way for you to save money and build up your company. For example, you may be able to deduct computers or learning assistance you’ve used to grow your company. There are many things that will assist you in growing the business, while serving as a healthy tax deduction. This is just another crucial reason to keep good order and organization with your expenses and records.

There is no need for you to learn everything that is tax deductible, but it is good practice to keep everything that might be. In the meantime, the professionals will get to work for you while you begin to save a lot more money. Overall, avoid these mistakes and you’ll start to feel less stress around tax time.

About author

Ivan Widjaya
Ivan Widjaya 2650 posts

Ivan Widjaya is the Owner/Editor of Noobpreneur.com, as well as several other blogs. He is a business blogger, web publisher and content marketer for SMEs.

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