As a small business owner, it is essential to understand your tax obligations and stay on top of filing deadlines. Unfortunately, mistakes can happen, and it is wise to be aware of the most common issues that arise when filing taxes for your business. In this article, you will learn about the most common small business tax mistakes so you can take proactive steps to avoid them. Knowing what to look out for can help save you time and money when preparing your taxes.
With the tax season in full swing, it is important for small business owners to stay informed and up to date on their taxes. Unfortunately, many small business owners make common mistakes when filing their taxes that can be easily avoided.
One of the most common business tax mistakes is procrastination. We know, there are very few people – especially business owners – who jump for joy once tax season hits.
But it’s important to think about your tax season the same way you think about your business plans: even if you are living your dream of running a business you love, there will be things you don’t like doing.
And you can’t put those things off until the last minute and expect the rest of your operations to run smoothly. The same is true with your taxes. In fact, when you file your taxes and your information returns early, you make it easier on yourself and the recipients of those forms to find new ways to make the most of this tax season.
Not Verifying Vital Information
This is one of the more obvious mistakes that so many of us make, and so few of us think we will make. It’s tedious, but a major mistake that millions of tax filers make every year is not verifying vital information on every single document page.
You should always take the time to double-check that the correct name, Social Security Number, and date of birth are on your forms. The same is true for your business information, TIN, and related identifiers. The only thing worse than filing taxes is having to re-file or file corrections because you missed something small but important on your first go-round.
Failing to Report All Income
This is something lots of people do, but small business owners have a lot more to lose when it comes to tax errors.
If you are a small business and you paid out anything more than $600 to freelancers, independent contractors, and other self-employed individuals, you need to make sure you have their W-9 information on hand before you sit down to create the 1099s to report their income (your expenses).
And if you are a small business that did some semi-related (or completely unrelated) odd jobs outside of your LLC or core business, you need to make sure you give your W-9 info to the businesses you helped so that you can use the Form 1099 they send you to report all of your income accurately.
Inaccurate Business Expense Reporting for Travel
You’ve seen it in movies, and probably also at corporate jobs if you’ve ever had one – many people use that company credit card for meals with clients, and everything from the lobster dinner to the 3 bottles of fancy wine goes in the expense report to be deducted at tax time.
But did you know – only 50% of certain business meals are deductible? According to this helpful article from Entrepreneur, you can deduct 50% of your meal costs if the meal is directly related to the conduct of your business or the meal directly precedes or follows a substantial business discussion.
There are several exceptions to this rule but treating all meals as 100% deductible could cause you lots of tax headaches when it comes time to file business-related deductions.
For example, reimbursements to employees that you plan to treat as taxable compensation, as well as reimbursements to independent contractors for their meals while on the job, are fully deductible. But pricey dinners out every night that you are attending an industry conference are not going to be 100% deductible, so it’s important to keep those guidelines handy when it comes time to file your expenses and deductions.
However, when you are traveling for work using a personal vehicle, many people make the mistake of not reporting their mileage.
Our current tax code allows business owners to claim mileage as a deduction, provided you can support your mileage claims with proof – an electronic spreadsheet, a notebook in your vehicle, or something like that. Talk to your trusted tax professional or check out the IRS website to ensure that you understand and are following the correct per-mile rate and any exceptions that may apply to it. You must also be aware of the maximum current allowable mileage deduction for the tax year in question and for the applicable vehicle type.
Some Good News about Common Small Business Tax Mistakes
There is some good news to share: you have tons of great resources you can rely on to help you avoid these common small business tax mistakes and make this tax season run smoothly.
eFile360 is your partner when it comes to filing your information returns like 1099s, 1098s, ACA forms, and W-2s. We make it easy for you to input your information and quickly choose whether you want to have all your forms e-filed or printed and mailed.
Don’t wait for big mistakes to start making changes that benefit your business. Sign up for a free eFile360 account today!