As a small business owner, your attention is pulled in many directions and it’s easy to let tax matters fall to the wayside. However, since it’s tax season once again, it’s time to shift your focus to this important matter. Before you dive in, our team of small business accountants at Goldin Group are sharing the common mistakes small business owners make when it comes to their taxes, so you can avoid them.
Common Tax Reporting Mistakes
Reporting accurate, up-to-date information in a timely manner is necessary to avoid having to pay late fees and fines and missing out on deductions. The most common tax reporting mistakes we see are:
- Independent Contractors:If you work with independent contractors, make sure they fill out a Form W-9 upon beginning to work with you. If you pay them more than $600 in a fiscal year, you need to accurately report their income on a Form 1099-MISC while providing the contractor with their own copy of the document. Many small business owners will classify contractors as employees on their taxes, but that’s actually costing more money as well as inaccurate.
- Over-Reporting or Under-Reporting Income: One of the ways small business owners over-report income is by including sales tax in their income reporting. Sales tax should not be included, so it’s important to subtract any that was paid during the year from your total income. Under-reporting is also a common and costly mistake. For example, if you sold business equipment you no longer need, such as furniture or a computer, you do need to include that as income on your taxes.
- Not Filing on Time: If you’re a small business owner operating as a sole proprietor, partner, LLC, or S-corporation shareholder, you should be paying quarterly estimated taxes, especially if you expect to owe over $1,000 when it’s time to file your return. Many business owners don’t do this and end up getting hit with a massive tax debt that is difficult to pay off. Also, paying on time is necessary to avoiding late fees and fines. Follow the tax deadline schedule to avoid this.
- Keeping Inaccurate or Disorganized Records:The accuracy of your tax reporting relies on the accuracy of your bookkeeping. If you aren’t keeping close records of expenses, including a travel log for your mileage, saving receipts, and tracking any income, payroll, and sales tax, you will either be missing out on deductions or not paying nearly enough. Either scenario can be financially disastrous for your small business. If you are unable to keep up with your financial records, it’s a good idea to consider using a small business CPA, such as Goldin Group.
- Separating Personal Expenses and Business Expenses:If you’re operating a sole proprietorship or an LLC, your business income will pass through to your personal income and you’ll report all of it on your personal income tax return. Doing this is convenient, but again, this is where keeping organized records and having separate bank accounts is important. This way you’ll have a clean separation of expenses and won’t inadvertently miss out on deductions or deduct too much.
- Not Using a Small Business Accountant: While tax software may make it seem easy for a small business owner to do their own taxes, many business owners who do this end up missing out on major deductions or misfile their taxes. Working with a professional accountant who is experienced in assisting small businesses means that your tax return will be accurate, timely, and more balanced in your favor.
Contact Our Small Business Accountants in the DC Metro Area
With the tax deadline just around the corner, reach out to our team today to help with your small business tax preparation. Our experienced CPAs will minimize your tax burden while ensuring your return is accurate, on time, and filed properly with the right forms.
Trust the Professionals at Goldin Group
At Goldin Group LLC, we understand that as a business owner, keeping up with accounting and taxes is time-consuming and can even be overwhelming. That’s where we can help! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a small business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email email@example.com to make an appointment.