Mistakes can happen easily, but anyone that’s had to pay tax penalties for their errors knows that it’s not a great feeling. Uncle Sam takes enough as it is, so we take a look at some of the most easily avoidable tax filing errors that will hopefully save your business from spending unnecessary money with the IRS.
1. Late filing or failing to file your taxes
The entity structure and nature of your business are factors that determine your tax filing requirements. Some businesses pay annual taxes while others make quarterly submissions to the IRS. Like individuals, business tax returns must be filed by the set deadline. Late submissions may result in tax penalties that could be costly for your business.
Accounting teams should diarize important tax filing deadlines and structure their annual work schedules around it to ensure that your business meets all filing deadlines. You can also have your accounting software set up to remind you of the deadlines and forms your business needs to submit to the IRS.
2. Underpaying estimated taxes
Businesses and individuals that file quarterly taxes must make estimated payments to the IRS throughout the year. Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.
While you may not be able to accurately predict the exact amount of money you would have to pay the IRS for the year, your accountant should be able to safely calculate your quarterly liability to Uncle Sam.
If you don’t pay enough tax through withholding and estimated tax payments, the IRS may charge you a penalty. What’s worse: if they found you to have been unreasonably careless or intentionally under-declaring revenues in your financial reporting they can fine you even more.
It is best to work with a reputable accountant that understands tax obligations and the requirements of the IRS.
3. Errors with employment taxes
Business owners with employees are expected to deposit taxes they withhold from their staff along with the employer’s share of the taxes due to the IRS. This payment is made electronically and is to be settled by the tax deadline. It is important to keep an accurate record of this in your books because incorrect calculations and short payments to the IRS can result in penalties for your business.
4. Not separating business and personal expenses
Mixing business and personal expenses are easy to do, especially when you’re self-employed. You may use one credit card for all expenses, but doing so could make it difficult for you to separate business spending from personal expenses, it may also become a headache for your accountant to manually study, separate, and justify these expenses.
Only business-related expenses can be deducted for tax purposes and this becomes terribly challenging to keep track of when you use one credit card for all expenses. To simplify the tax declaration of deductible expenses, it is advisable for business owners not to mix personal and business expenses in one account. Failure to do so may lead to errors that could cause run-ins with the IRS if your business is audited.
5. Not including all Deductions
Businesses need to spend money to make money and the IRS allows you to deduct the expenses considered ordinary and necessary to the smooth running of your business, to be deductible from your total tax bill.
What is perfectly deductible in one business industry may not be the case for another. For this reason, some business owners neglect to deduct all they are safely allowed to. This lack of awareness can cost your business money. It is important to sit with a tax expert to discuss what your business can safely withhold from the IRS as a tax-deductible expense. Once you understand the permissible deductions for your industry, you can implement this continually.
At Fusion CPA, we have years of experience working with businesses across different industries to submit accurate tax forms to the IRS. Our team of CPAs stands ready to provide general accounting, bookkeeping, and tax planning advice and will guide you to the right accounting processes and software to make your tax filing process smoother. Contact us to learn more.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.