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IRA Financial Group Blog

Small Business Tax Mistakes to Avoid

small business tax mistakes
Key Points
  • Tax Season doesn’t have to only be once a year
  • Businesses should take care filing taxes
  • Paying attention to details is vital

Albert Einstein is credited with saying, “The hardest thing in the world to understand is the income tax.” Taxes are a fact of life, and the IRS does its job well in collecting them. It’s important that as a small business you keep great records, pay your taxes when due, and follow all IRS rules and guidelines.

To Start With

  • Don’t under-report your earnings – While it can be tempting to try and finagle your way through tax season, failing to report your earning, or claiming income in cryptocurrency can be red flag to the IRS. Use real numbers, and get help where needed.
  • Don’t over report your earnings – Make sure you’re using the correct income (net or gross) and entering the right amounts so that you’re not overpaying. If you need help get a tax preparer or advisor to assist.

Tax Paperwork

  • Make certain you’re submitting the right forms – Using incorrect forms can trigger scrutiny from the IRS. A tax preparer can assist if you aren’t sure what forms you need.
  • Make sure your forms are filled in correctly – It’s important to dot all your “I”s and cross all your “T”s when filling out government paperwork.

Taxes – Quarterly Question

  • Pay the right amount in your quarterly taxes – Skimping on quarterly taxes means more is due for you when you pay at the end of the year, but you can get hit with penalties and charges if you don’t pay what’s due when it’s due.

Retiring

  • Make certain you have the right retirement plan – Worst of all, of course, is not having any retirement plan in place. When you’re setting up a retirement plan for yourself and your small business, it pays to do your research. A Solo 401k plan is often the best plan as it will allow for the largest contribution.
  • Max out your contributions to your retirement plan – Saving for retirement is important when you own your own business. Maxing out contributions may mean tax advantages for you, depending on what retirement plan you choose.

Mix and Match

  •  Federal/State – File your federal and state forms correctly, filled out correctly, and accompanied by any paperwork specific to each.
  • Personal/Business – Keeping your personal and business expenses separate throughout the year can help make it easier for you to organize your paperwork when it comes time to file your taxes. It is recommended to use a separate business bank account and credit card when recording business expenses and income.
  • Year by Year Filing – There can be reasons you only need to file for one year at a time, but there can also be times where there are carryover deductions that were underutilized in the prior year.
  • Get help – Tax professionals can help with questions about specific items, as well as filing entire returns for your business. Remember to get the proper help when needed, so that everything is in order and you avoid undue scrutiny.

Paying your small business taxes can seem challenging, but with some preparation it doesn’t have to be difficult. Planning in advance maximizes your income and minimizes the amount you might have to pay in fees and penalties. Working with a bookkeeper, tax advisor, and retirement professional can help move your small business forward, onto bigger and better things.

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