Even though companies complete taxes every year, business tax preparation and filing present many opportunities for missteps. Part of the challenge is that business owners need to handle taxes while juggling all their other responsibilities. Changing regulations and evolving requirements can also complicate the task.
Sidestep these tax mistakes so you can turn in accurate business taxes on time.
Mistake #1: Giving your tax preparer a mess to clean up.
Tax preparers are experts, but not magicians. If you give them a jumble of records with missing information, you may jeopardize your chances of receiving a speedy and accurate return. Likewise, using tax software yourself will be challenging if you’re working with difficult-to-decipher records. Invest in file folders, file boxes, secure file cabinets, labels and other essentials to help keep track of financial records and tax documents as you generate them throughout the year. If you’re doing your own taxes, be sure to start early so you know exactly what information you need to gather.
Mistake #2: Failing to take your entitled deductions.
The great news for freelancers, consultants and business owners is that there are myriad deductions available to reduce what you owe at tax time. Your tax preparer or tax software will prompt you to claim these breaks, but it also helps to be aware of what’s available to bring things to the fore. Don’t overlook deductions such as use of a personal car for business, petty cash expenses, startup costs, certain expenses related to taking out loans or mortgages, business usage of a mobile phone or internet service, research activities, or educational expenses related to your business or industry.
Mistake #3: Waiting too long.
While it may not be on your bucket list to prepare for tax time, starting early is important for your stress level and getting the best return on your efforts. Hopefully you’ve been regularly tracking spending so you have records close at hand. As soon as possible in the new year, organize your information, track down anything missing from people inside or outside your organization, and check tax documents to determine what else you may need. Keep in mind that an extension to file taxes does not typically preclude penalties and interest from accruing if you owe money at tax time. Extensions typically mean extra time to file, but not an extension of time to pay.
Mistake #4: Forgetting to budget for quarterly taxes.
Many independent workers and business owners are required to pay quarterly taxes. Ask your tax advisor if this applies to you and to determine what you owe. Budgeting for and making quarterly payments will help you avoid unpleasant surprises when you file your return. For some companies, the first quarterly payment is due the same day taxes are filed, so planning for these payments can help you set aside the necessary funds.
Mistake #5: Not storing your tax information properly.
Once your taxes are filed, keep a secure file cabinet or box to store copies of your returns and related documents. You may need to refer to these documents for loan applications and other endeavors. Also, if you are audited, quick access to these returns will help you give tax officials what they need. Keep your old returns sorted by year for easy access, and create folders for documentation on payments received, bank statements, investments, purchases and expenditures, donations and other paperwork you will need for next year’s filing.
This information is only provided for general informational purposes, and should not be considered as offering individualized tax advice. Please consult your tax advisor on specific issues related to your tax situation.