We have noticed small businesses making common tax errors while filing their returns. These common errors might include accidentally overriding tax laws, violating tax codes, or incorrectly filling out forms. These mistakes are committed unintentionally but might lead to a hefty tax penalty which, we are sure, you don’t want to deal with.
In this blog, we will throw light on some of these common tax errors so that you can be cautious and file your return correctly.
Underpaying estimated taxes
If, as a small business, you are expecting to owe equal to more than $1000 as taxes, then you shall ensure to make them through estimated tax payments.
Small businesses are often noticed missing out on such detail which later leads to a tax time penalty. Therefore, you shall make it a point to make timely tax payments using tax withholdings and estimated tax payments.
Depositing employment taxes
All businesses are expected to deduct tax withholdings from their employee’s paychecks. Such withholding amount along with the employer contribution is supposed to be deposited to the IRS through electronic fund transfers.
Many a time, employers deduct an incorrect withholding amount from their employee’s paycheck, which later causes trouble to both – the employer and the employee. Therefore, you shall make it a point to ask all your employees to calculate the correct amount of their withholding using the Withholding Estimator available on the IRS website. This can help you be sure about the correct amount of deductible withholding and your contribution in the same, and avoid any unforeseen tax penalty.
Missing the tax filing deadline
This is another issue which impacts the tax profile of small businesses. All small business owners shall ensure to clear all their taxes on time to avoid any possible penalties or charges. You can do this by preparing for your taxes in advance by arranging all the necessary documents beforehand and checking the codes related to withholding, etc. You can read our blog on ‘Get ready to file your upcoming tax returns‘ to get a clear view of how you can prepare for filing 2020 returns in advance.
Not separating business and personal expenses
Things are not as organized when you run a small business. It is often noticed that small business owners, especially sole proprietorships, tend to use a common credit card for both – personal and business expenses. This later makes it very difficult to legitimate and differentiate the business and personal expenses, and shows errors in business records. The same can turn to be a huge issue if your accounts are ever audited and mismatch is found. Therefore, you shall ensure to maintain a streamlined record of your business transactions and try using different credit cards for both purposes.
Being aware of the tax laws, codes, and filing procedures is very important to avoid any last-minute tax errors and subsequent penalties. Small business owners should make themselves familiar with basic tax-related norms and protocols to prevent such mistakes. You can consider getting your taxes prepared through an experienced and professional tax preparer or expert to avoid any such teething issues. You can also contact your MyTaxFiler expert to understand the basics of filing taxes promptly and never face a tax penalty.