Written by: Brielle Regdos, Content Writer
Avoid common business tax mistakes by adopting the following 5 tips.
Business taxes are the payments that a company must make to local, state, and federal governments.
These can include:
- Income Tax on business profits
- Sales Tax
- Self-Employment Tax - Social Security and Medicare
- Payroll Tax - Social Security, Medicare, federal income tax withholding, state income tax, and unemployment tax
Paying business taxes is essential for legal compliance, supporting business growth, and for effective financial planning. Legal compliance means taxes are required by law. Failure to pay them can lead to fines, penalties, and legal action. Managing taxes properly can help businesses maintain a positive relationship with tax authorities, reduce stress during tax season, and support financial management for growth. Understanding taxes is key to managing cash flow, creating accurate budgets, and planning for long-term financial stability.
It’s important for entrepreneurs and small business owners to have a solid understanding of business taxes. The tax system can be complicated and mistakes can lead to penalties, missed deductions, or even audits.
Five Common Tax Mistakes Businesses Make and Tips on How to Avoid Them
1. Poor Record-Keeping
Inadequate or disorganized records can lead to missed deductions or errors on tax returns. To avoid this, consider hiring a reliable accountant to handle your records or stay organized by keeping receipts, invoices, and bank statements in an easily accessible and structured manner.
2. Mixing Personal and Business Expenses
Combining personal and business expenses can create confusion when determining what’s tax-deductible. The IRS scrutinizes this and it could result in penalties. To keep things clear, open a separate business bank account and use it exclusively for business transactions. Alternatively, a dedicated business credit card can help keep business expenses organized.
3. Neglecting Estimated Tax Payments
Self-employed business owners or small business owners often miss quarterly estimated tax payments, leading to large tax bills and penalties at year-end. Set up a system for making these payments throughout the year and collaborate with an accountant to estimate how much you should pay based on your income and potential deductions.
4. Ignoring Payroll Taxes
Failing to withhold and remit payroll taxes (including Social Security, Medicare, and unemployment taxes) can result in severe penalties. If you have employees, ensure you have a reliable payroll system in place to handle proper withholding and timely payment of payroll taxes. Stay informed about federal and state payroll tax requirements, or consider outsourcing payroll management to professionals.
5. Missing Filing Deadlines
Missing deadlines for tax filings can result in costly penalties and interest on overdue taxes. Mark key tax dates on your calendar and file returns early to avoid last-minute stress and risk missing deadlines.
To avoid common tax mistakes, consider working with a professional accountant or tax advisor who can guide you through the process. Keep organized records of income, expenses, and deductions, and stay updated on changing tax laws. Meeting regularly with your accountant can help you stay on track and avoid costly errors. Educating yourself about taxes also empowers you to make informed decisions and plan throughout the year for a smoother tax season. By staying proactive and informed about your business taxes, you can prevent issues and focus on growing your business.
Trust the Experts at EnTune Financial Services
Reach out and see how we can help. enTune Financial Services can assist in keeping your business financials up to date. Not just for tax season, but ALL throughout the year! Having up to date financial information allows you to make proactive decisions for your business. Get expert financial support, custom tailored for your business’s unique needs. Contact our team for a free consultation.
