Have you started working on your tax return yet? This is one of the dreadful tasks that cannot be avoided by business owners. The deadline is almost around the corner and things can go out of hand especially if there is no proper tax planning.

This blog is about the common tax preparation mistakes that business owners make. Did you know that being aware of these things can make a huge difference? Read on….

Failure to File and/or Failure to Pay Taxes on Time

This is the most common mistake that can be easily avoided. There are two penalties: failure to file and failure to pay on due date.

Even if you think that you cannot pay the full amount due, you should file on time or file an extension so you avoid the failure to file penalty.

Having a huge tax bill is a stressful situation for every business owner.  To address this, the first step is to maintain accurate and up to date financial records.  If you do not have the time nor the knowledge to achieve this, hire a professional bookkeeper to maintain your financial records.  Then, meet with your Enrolled Agent on a quarterly basis to determine your estimated taxable income. Based on this estimate, make an adjustment as needed, and pay your quarterly income tax due. This will help with your cash flow management and not be stressed out getting a huge tax bill at the last minute.

Consult with your Enrolled Agent on the quarterly estimated tax payment deadline.

Neglecting to Hire a Tax Professional

As a small business owner, you would want to minimize the cost by preparing your return by yourself. It might work for some but there is the risk of filing an inaccurate tax return and may cost more in penalties and interest, compared to the tax preparation fee to pay if you hire a professional. An Enrolled Agent can assist you in preparing and filing your income tax return for your business and personal income.

Overlooking Legitimate Business Expense Deductions

As mentioned above, qualified business expense deductions can legally reduce your tax obligation. However, if you are not familiar with the legitimate business deductions, you may not include this on your tax deductions which will result in paying more than you should.  There are many deductible business expenses such as start-up cost, office supplies, payroll expenses, and many others. However, some of these are governed with certain tax rulings. For instance, meals and entertainment are not 100% deductible.

Review the IRS rulings regarding qualified business deductions.  If you are unsure, engage a professional tax preparer like an Enrolled Agent to help you.

Inaccurate or Incomplete Records

It is important to have the necessary records to support the claimed deductions in the return. Records are not limited to receipts for expenses incurred but also include documents regarding asset purchases and disposal, loans, and many others. Organizing the records is not an easy task for those people who are busy or it is not just their thing. Maybe, you may consider hiring staff to handle this task. Accurate and complete records can make the tax return preparation easier and if ever you get audited by the IRS you have the supporting documents to show that those were legitimate income and deductions.

If you need assistance on your tax preparation, contact us today admin@fas-accountingsolutions.com or 832-437-0385.