Common Tax Filing Mistakes to Avoid

As tax laws keep changing continuously, new and experienced business owners face many challenges during tax season. Several common mistakes can lead to significant financial consequences.?

Mixing business and personal expenses, keeping poor records, and making payroll mistakes are a few common errors that business owners often experience during tax season. Let’s look at other major mistakes that can lead to financial problems.

1. Missing Tax Submission Deadlines and Timely Payments

Many small business owners neglect to file required tax forms and payments, leading to missed deadlines and penalties. The necessary forms vary by business structure and industry.

Payroll taxes and estimated income tax are due quarterly, while W-2 and 1099 forms must be distributed annually. Using payroll software can help prevent missed deadlines.

Penalties include Failure to File and Failure to Pay. It’s essential to file even if immediate payment isn’t possible. Businesses should make quarterly estimated payments if expecting to owe over $1,000. Overlooking these can lead to significant debt and late fees.

If more time is needed, it is essential to submit Form 4868 (sole proprietors) or Form 7004 (other entities) for an extension.

1. Reporting Income Inaccurately

Accurate income reporting is essential to avoid tax issues. Reporting income that is too high or failing to report all earnings can lead to an audit. One common mistake is neglecting to report income from selling digital products or services, such as online courses or eBooks. This income must be included in your tax returns.

The IRS uses technology to compare the information you provide with what they receive from various sources, including 1099 forms. For instance, the 1099-MISC form reports non-employee compensation, while other forms report income from investments or retirement accounts. It’s crucial to accurately report all income from these sources on your tax returns and ensure it is categorized correctly.

????????3. Missing the Deductions

Maximizing your deductions is key to lowering your tax bill. The IRS allows you to deduct expenses that are “ordinary and necessary” for your business. Here are some commonly missed deductions:

• Home office expenses
• Accounting and bookkeeping fees
• Tax preparation costs
• Business vehicle use
• Health and liability insurance
• Travel and meals

While it's important to take these deductions, it is essential to be careful. Claiming invalid deductions can lead to audits and penalties.

Closing Remarks

Avoiding common tax mistakes is essential for businesses to stay compliant and prevent financial setbacks. Keeping accurate records, meeting deadlines, and staying updated on changing tax laws can make tax season much less stressful.?

Managing all these tasks in-house can be overwhelming, especially for growing businesses. This is why many companies are opting to outsource their tax preparation to experts like OBS. By utilizing tax preparation outsourcing services from OBS, you can focus on your business, knowing that your taxes are managed accurately and compliantly. With their experience and expertise in tax preparation outsourcing, you can stay on top of your tax obligations without the stress.