Many entrepreneurs feel as if they are carrying the weight of the world on their shoulders by taking on the majority of responsibilities within their business. As a result, too many business owners end up filing their own taxes. Many of these filings actually contain preventable mistakes. Read on to learn more about some of the most common mistakes that occur when filing taxes on your own.
Poor Record Keeping
It is not enough to rely on a pen and paper or your memory alone when filing taxes. Unfortunately, disorderly record keeping is one of the most common problems for small business owners, according to the IRS. One area where many small businesses go wrong is when they use their personal credit cards or cash for business purchases and fail to properly track the receipts.
If you estimate your taxes and expenses and arrive at a number that is far above or below the reality, you will face issues with the IRS. Exact figures are needed when reporting your taxes. Working with an accountant is a smart way to ensure that your data entry is reviewed periodically and that all expenses and other essential data have been correctly captured.
Many business owners are mistakenly under the impression that their payments for taxes are due annually on April 15. Instead, the tax system in place for businesses prefers a pay-as-you-go system, where owners are expected to make their tax payments on a quarterly basis—on April 15, June 15, September 15, and January 15. Failing to make these payments regularly may cause your return to be flagged for an audit and could even trigger interest charges and penalties.
Classifying Workers Inappropriately
Often, small business owners hire virtual assistants or independent contractors to assist with projects or ongoing jobs. Erroneously classifying these workers as payroll costs and deducting them as such on your tax return can lead to problems with the IRS.
Costs that the IRS classifies as wages could be subject to payroll taxes, and if they are, you will be taxed 10% more. Independent contractors should always be classified as outside services on your tax return. To gain clarification on this and many other important issues relevant to taxes, hire a small business accountant. Having a trustworthy accountant working with you from the beginning can increase your awareness of these red flags and help you structure plans to deal with these issues before they arise.