3 Common Tax Mistakes for Business Owners and How to Avoid Them
Within any given year, there are several tax issues that can impact business owners. If these issues aren't handled properly, it can lead to problems with the IRS and significant penalties.
This post discusses three common tax mistakes that business owners should avoid.
Filing Taxes Late
Late filing can happen for many reasons, such as not having all the necessary documentation or simply forgetting to file.
There's no penalty for filing late if you're expecting a refund. However, if you owe money to the IRS, you may incur a late payment penalty of 5% of the taxes owed for every month that the return is late, up to 25%.
To avoid these penalties, it's important to file your taxes on time, even if you can't pay the full amount owed. You can do this by filing an extension, which will give you an additional six months to file your return.
You can file for an extension by completing Form 4868 and submitting it to the IRS. However, even if you file for an extension, you'll still need to pay any taxes due by the original filing deadline.
Failure to Keep Accurate Records
This can make it difficult to track expenses and deductions, which can lead to problems when it comes time to file your taxes.
To avoid this problem, keep accurate records of all your business expenses. This includes receipts, invoices, bank statements, and credit card statements.
You should also keep track of your mileage if you use your personal vehicle for business purposes. This can be done by keeping a mileage log or using GPS tracking. You can deduct business-related mileage from your taxes.
Keeping accurate records will not only help you avoid tax problems, but it will also help you save money on taxes by taking advantage of deductions and credits that you're entitled to.
Not Hiring an Accountant to Help With Tax Planning
Many business owners try to save money by doing their own taxes or hiring a tax preparation expert. However, this can be a mistake if you're unfamiliar with the tax code.
There are many good reasons to hire an accountant to help with your business tax planning. First, an accountant can help you make sure you take advantage of all the deductions and credits you're entitled to.
They can also help you structure your affairs to minimize your tax bill. In other words, they help you plan for your taxes so that you don't end up owing money to the IRS. For example, if you have a choice between incorporating and remaining a sole proprietorship, an accountant can help you choose the option that will result in a lower tax bill.
While hiring a tax planning accountant will cost you money upfront, he or she can save you money in the long run by helping you avoid tax problems and maximizing your deductions.