10 Business Tax Filing Mistakes and How to Avoid Them

The IRS has been actively auditing more small businesses over the course of the last few years. They’ve been doing it, at least in part, because of all the tax changes that have taken place during the COVID-19 pandemic.

With this in mind, you should make sure that you have all your ducks in a row when you’re doing your small business taxes. You don’t want to make any crucial business tax filing mistakes and have them come back to bite you later on.

As you begin to do tax season preparation, we’re going to provide you with a list of some of the biggest business tax filing mistakes that should be on your radar. You should be able to avoid them with ease when you know what they are.

Take a look at ten business tax filing mistakes below and learn all about how to steer clear of them at all costs.

1. Waiting Until the Last Minute to File Taxes

Paying business taxes isn’t very much fun. As a result, there are a lot of small business owners that will put off doing it until the last minute.

If you’re someone who always seems to procrastinate on your business taxes every year, you should get yourself out of the habit of doing this. Pay close attention to the IRS’ business tax deadlines and adhere to them.

Waiting until the 11th hour to do your taxes is going to lead to you making at least a few business tax filing mistakes. It’s why you should try to avoid this by planning ahead and staying on top of your tax obligations at all times.

2. Attempting to File Taxes Without the Help of an Accountant

When you’re filing your personal taxes, you might be able to get away with doing it on your own. They tend to be pretty easy to do outside of a few notable exceptions (like, say, if you’re self-employed).

But when you’re filing your business taxes, you should try to get the help of an accountant. In fact, it would be worth bringing an accountant on board all year long if possible so that you’re ready for tax season when it rolls around.

Filing tax returns for your business will be infinitely easier when you have a tax accountant in your corner. They can prevent you from unknowingly making business tax filing mistakes.

3. Failing to Keep Proper Records for Tax Purposes

Regardless of whether you do your business taxes yourself or hire an accountant to handle them for you, you’ll need to be diligent about keeping the proper records for tax purposes. You’ll need to save everything from your receipts to your payroll pay stubs so that you can do your taxes each year.

You would be amazed to hear how many small business owners fail to keep records of all their transactions throughout a given year. It can make it almost impossible for them to avoid making business tax filing mistakes.

4. Mixing Up Your Personal and Business Expenses

As a small business owner, you’ll be able to write off a lot of your business expenses when you file your taxes. But it’s going to be challenging to do this when you have your personal and business expenses all mixed up.

For this reason, you should try your hardest to keep your personal and business expenses separated throughout the year. It’ll prevent you from trying to deduct personal expenses from your business taxes. It’ll also prevent you from overlooking business expenses that should be included in your tax returns.

5. Forgetting About Important Tax Deductions and Credits

There are so many important tax deductions and credits that you can take advantage of at tax time. While you’re doing your business taxes, you can write off things like:

  • Startup costs
  • Inventory costs
  • Insurance costs
  • Utility costs
  • And more!

You should familiarize yourself with all of the various tax deductions and credits that are available to you. This will be especially important in the immediate aftermath of the COVID-19 pandemic since there are credits like the Employee Retention Credit available for a limited time. Apply for ERC here.

6. Writing Off Business Expenses That You Can’t Deduct

While you can earn lots of tax deductions and credits when you file your business taxes, there are certain expenses that you won’t be able to deduct. Trying to deduct them is one of the worst business tax filing mistakes you can make.

You aren’t allowed to deduct business expenses like:

  • Work clothes that you can wear during your personal time
  • The cost of commuting to and from work
  • A portion of your business-related meals
  • Legal fees related to purchasing property
  • Research fees related to expanding your business

You’re going to have to bite the bullet and handle these expenses yourself without writing them off on your taxes. Deducting these types of things could raise some red flags with the IRS and result in an audit.

7. Classifying Your Staff Members Improperly

In an effort to save money in recent years, some small businesses have tried to hire independent contractors to work for them rather than full-time employees.

When done right, hiring independent contractors can be a lifesaver for many small businesses. But if your small business is classifying employees as independent contractors while asking them to work certain hours and take on certain responsibilities, you might be misclassifying them.

You may be making a business tax filing mistake by taking this approach to classifying your employees. And it could cost you a pretty penny if you’re ever caught doing it.

8. Neglecting to Fulfill All of Your Various Tax Obligations

Small businesses are required to pay a variety of different types of taxes. It’s imperative that you fulfill each and every one of your tax obligations since you could end up in hot water if you don’t.

Here are several of the tax obligations that you’re going to have as a small business owner:

  • Income taxes
  • Sales taxes
  • Payroll taxes
  • Property taxes
  • Excise taxes

If you aren’t paying all of these types of taxes, you might not be giving Uncle Sam what he’s owed. An accountant will be able to keep you on track as far as paying these types of taxes is concerned.

9. Sending Tax Payments In Later Than You Should

There is a reason why the IRS sets business tax deadlines. It’s so that small business owners send their tax payments in on time.

If you routinely skip deadlines, this means that you probably aren’t sending your tax payments in when they’re due. It also means that you’re likely getting hit with interest charges and other fees that you shouldn’t be subjected to.

Outside of meeting business tax deadlines, you should also make it your mission to pay your business taxes on time. If you’re even a few weeks late with tax payments, it could put your small business behind the eight ball.

10. Putting Off Paying Your Business Taxes Altogether

Have you ever toyed with the idea of not paying your business taxes at all? Don’t do this!

You might be tempted to take this approach to paying business taxes because you’re short on cash. But rest assured, the IRS will find a way to get the money that you owe them if you don’t pay your business taxes.

More often than not, the IRS will play nice with you at first if you don’t pay your business taxes. They’ll send you reminders about them and inform you that you need to pay your business taxes ASAP.

But if you continue to ignore the IRS, they’ll begin to play hardball with you. They’ll put a lien on your business and begin to legally dip into your business bank accounts to seize the money that you owe to them.

This isn’t a situation that you’ll want to find yourself in at any point. It can do irreparable damage to your business credit and put you in a spot where you might have to shut down your business for good.

Don’t Make Any of These Business Tax Filing Mistakes

Running a small business is already hard enough. You have a million and one things on your plate at any given time.

Don’t make running a small business even harder on yourself by making any of the business tax filing mistakes listed here. They’ll set your business back in a big way and potentially cost you a whole lot of money.

Working with an accountant and staying on top of your recordkeeping practices should help you avoid making any of these business tax filing mistakes. Doing these things will also make you feel like you’re more in control of your business and your tax obligations.

Look for additional tips on running a successful small business by browsing through our other blog articles.