Sorting your small business’s taxes can be a daunting and intimidating task. There are so many things to keep track of like remembering to apply for your ertc (Employee Retention Tax Credit), getting all your paperwork together, double-checking the figures, etc.
With all this stress, it’s easy to make mistakes – so here are the 5 most common mistakes you need to avoid when sorting your small business’s taxes!
Check out the information below and follow the guide. This way, you can avoid making some huge costly mistakes that could land you in hot water!
If there’s one thing that the Internal Revenue Service (IRS) is more strict on than anything, it’s mixing up your funds.
You can only deduct expenses related to your business from your income and if you mix up your business and personal expenses, you may accidentally try and get a tax cut for things that had nothing to do with your business.
This can look really bad on your part and when the IRS catches you (because they will), you will have to do a lot of fast talking.
To avoid this mistake, keep your personal and business finances completely separate. This means different bank accounts, different credit cards, and different records are kept in separate files. Even if you use personal assets for your business – make sure you keep detailed records of when you use them!
Speaking of which…
When it’s time to work out your business’s taxes, you need to back up everything with paperwork. This means digging out old records, receipts, and more.
If you poorly organize your records and files, then this part of the taxing process can take forever and create a serious backlog. The last thing you want is to miss out on tax cuts and deductions you are entitled to all because you couldn’t find the right paperwork!
Keep track of all your business’s finances and store your reports in an effective filing system. There are tons of tools you can use to help you like accounting software and reporting systems. This will help you keep track of your files so you can access all the data you need when you need it.
In short, organization is key!
The tax system in the US is pretty unfair. The IRS already knows how much tax you owe but they still want you to provide them with a figure. If you underestimate how much you owe in tax or underreport your income, you can be slapped with a huge penalty.
As a result, you need to get the math right.
Sometimes, the IRS will be understanding when it’s a case of a simple math error here or there – but serious, negligent mistakes can look like an attempt to defraud the IRS. So, check and double-check your math.
If you are not great at math then you can hire help from an accountant to get a more accurate figure and avoid the IRS raining down the fines and penalties!
Filing your small business’s taxes often means making payments, filing, and sending lots of different forms to the IRS and your state’s tax department.
Different taxes will have different deadlines and it can be difficult to stay on top of what you need to submit and by when. If you mess up, you could potentially miss out on tax cuts, and deductions, or end up with a penalty.
Keep an organized calendar with all the deadlines for your various deadlines and payments. Some software will send you reminders so you can get all the paperwork done and dusted well in advance. If you have an accountant, they should help you set up an annual calendar so you can see what is due to who well in advance.
Most businesses are entitled to some kind of deduction or tax relief – but it’s up to you to know what you are entitled to and why. If you try taking the wrong deductions then you could be hit with a huge penalty.
On top of that, your deductions need to be in proportion to your income. If your deduction is way too large, then you could also be hit with penalties!
So, those were 5 common mistakes to avoid when sorting your small business’s taxes. Double-check your work to make sure you haven’t made any of the mistakes above and fix them before you get in trouble!