As a small business owner, you’re likely juggling a myriad of responsibilities. From managing operations to developing marketing strategies, your plate is full.
Tax planning might not be high on your priority list, but it’s crucial to running a successful business.
Unfortunately, many small business owners make common tax mistakes that can lead to hefty penalties and unnecessary stress. In this post, we’ll discuss some of these mistakes and provide tips to help you avoid them.
2. Misclassifying Employees and Contractors
It’s vital to understand the difference between an employee and a contractor for tax purposes. Misclassifying can result in significant penalties and back taxes. Ensure that you understand the IRS guidelines for classification and apply them correctly in your business.
3. Not Understanding Deductible Expenses
Small business owners are oftentimes in the dark about what they can write off. This lack of knowledge can result in businesses overpaying their taxes. Invest time in understanding what expenses you can deduct and keep accurate records of these expenses.
4. Not Making Estimated Tax Payments
Small business owners are typically required to make estimated tax payments throughout the year.
Failure to make these payments can result in penalties for underpayment. The IRS keeps careful tabs on your income and may even decide to start coming to your house and contacting those who know you to get your attention.
This is a problem you want to avoid by any means. The IRS has a way of adding compound interest to your already existing taxes, which makes your life more difficult if you owe back taxes for multiple years.
Not withholding enough taxes for your W2 wages income.
5. Filing Taxes Late
Filing your taxes late can result in penalties and interest charges. Stay on top of tax deadlines and ensure you file your taxes on time.
If you need more time, you can file for an extension, but you will still need to pay any estimated taxes by the original deadline.
Avoiding these common tax mistakes can save you time, stress, and money. Consider consulting with a tax professional to ensure you’re handling your business taxes correctly. They can provide guidance tailored to your business’s unique needs and ensure you’re in compliance with all relevant tax laws and regulations.
