Business owners often wear many different hats, from Marketing Specialist to Chief Financial Officer. When it comes to Accounting and Taxation, you might be tempted to implement a DIY approach rather than engage with an Accounting Firm to assist in maintain your Business Accounting and Tax compliance. A DIY approach might appear to be a cheaper option at firs. However, this approach could leave you open to mistakes when filing and paying taxes.
Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave you open to possible penalties. Being aware of common mistakes can also help reduce your stress of tax time. Here are a few mistakes business owners should avoid:
Underpaying estimated taxes
You should generally make estimated tax payments if you expect to owe tax of $1,000 or more when filing your Tax Returns. If you don’t pay enough tax through withholding and estimated tax payments, you might incur a penalty. Consider working with a proactive accountant that can assist you in projecting your overall tax liability before tax season. This will allow you to be fully prepared for any upcoming tax liabilities, and send in the correct amount of estimated tax payments.
Depositing employment taxes
If you have employees, you are expected to deposit payroll taxes collected on time and accurately. Errors in this area can result in massive fines and penalties therefore, consider working with a reputable payroll provide like Gusto.
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, you should be aware of all tax deadlines and filing requirements for your individual business entity type.
Not separating business and personal expenses
It can be tempting to use one credit card for all expenses, especially if you manage a small sole proprietorship business. However, by comingling personal and business funds can place you in a position where the IRS can disqualify legitimate business expenses. Also, comingling funds will make it harder to track your business expenses and could result in unwanted errors when filing your Tax Returns. Depending on the severity of the errors, you could be assessed additional fines, penalties and interest.
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Publication 505, Tax Withholding and Estimated Tax
Publication 15, Circular E, Employer’s Tax Guide