Filing your business taxes each year is troublesome at best. When things get complicated, how can you do it without running into serious mistakes? Here are five common mistakes to avoid:
1. Not Separating Business From Pleasure
Small business owners often make the mistake of mixing in their business expenses with personal ones. Though it may sound easier to put them all in one bucket, you’ll start sweating real hard to determine which is business and which is not business when tax time comes around.
Avoid this mistake by making a business account which should only be used for company expenses, and a personal one for your expenses. Resist the urge to cross them over, and if you do, don’t file for them. These practices may raise a concern over at the IRS, which is the last thing you need.
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2. Not Filing Self-Employment Taxes
Self-employment tax is a requirement if your business earns $400 or more. Map out estimated tax payments so you can save yourself a big headache come tax time in April. Quarterly payments are optimal as you can save more on interest and tax penalties.
3. Not Hiring An Accountant
Business tax software are great for businesses that has a simple setup, but when you have a complex business, then it’s definitely time to hire a capable accountant. You may save some money while using the software, but the mistakes that might occur may end up costing you more in the long run.
Choose an accountant that has experience in filing taxes and has a working knowledge on your business industry. Recommendations and reviews are also viable options.
4. Not Keeping Your Records Up To Date
Do you file everything at the last minute? Chances are, you’ll make some mistakes here and there. But if you regularly update your accounting records, then the process of filing taxes becomes a smoother routine. Recapping an entire year’s worth of credit card payments, checks and receipts isn’t something you can do in a couple of days. It can quickly become overwhelming and cause panic.
How often should one update his or her business records? 30 minutes per week should suffice. This way, estimated tax payments are more accurate and easily calculated. As a plus side, you can manage your business better and see the progress much more clearly.
5. Not Paying On Time
Business owners hate the idea of losing money. For this reason, you should always pay your taxes on time. Missing the deadline will net you a 5% penalty per month, which increases until the time you finally wise up and file the returns. Neglecting to do so will net you a 6% interest fee and a .5% late fee each month after April.
All that penalties and fees can be used for something better. If you find that you absolutely cannot finish filing your taxes on time, then you can request a filing extension which allows you to extend the deadline by a little bit. Check out the IRS site to see how you can submit one.