Tax season is every entrepreneur’s nightmare. You’re aware that paying taxes is important and valuable to society as a whole, but that doesn’t make it any easier when it’s time to file your returns.
Perhaps things would be better if it didn’t seem so complex. Filing a tax return is a ridiculously complicated process that can be highly stressful. As such, mistakes are made very regularly. Below, you’ll find some of the biggest tax filing mistakes entrepreneurs make, ones you should definitely be prepared to avoid!
Missing deadlines
The biggest mistake is missing tax deadlines. In fairness, this is slightly harder than it seems as the IRS outlines multiple filing dates depending on how you file taxes. For most entrepreneurs, it’ll be sometime in April – this year, it was April 18th.
Missing deadlines is easy when you’re busy running a business, but it will result in penalty fees and fares. You will end up paying more money, so always set reminders on your calendar to pay before deadline and avoid this tax filing mistake.
Incorrect deductions
As an entrepreneur, you’re allowed to deduct certain expenses from your tax returns. These are classified as “tax-deductible business expenses” and will relate to things you pay for that are necessary for running your business.
A fairly vague description, which is why so many entrepreneurs make incorrect deductions. Some of you might deduct things that don’t come under this classification, leading to penalty fees. However, it’s really common to not deduct expenses you could be claiming for. This is why it’s worth working with a tax specialist to exactly understand what you can and can’t deduct.
Choosing the wrong tax entity
As an entrepreneur, you have to choose a tax entity when filing. This will classify your business, but it will also determine your tax rate. A few common entities include:
- Sole proprietor
- LLC
- Corporation
- Partnership
- Non-profit
- Trust
The list goes on and it makes a big impact on how much tax you’ll pay. Too many entrepreneurs pick the wrong entity and end up paying more tax than they have to.
Firstly, figure out which entity is the best for you. Then, work with a stress-free EIN application filing service to get the right Tax ID number. You’ll now be in a better position to pay the right tax rate for your business.
Not keeping good records
You need good records of outgoings and income when filing business taxes. There should be clear evidence of everything to ensure your tax return matches your financial statement.
Some entrepreneurs choose to outsource bookkeeping so this is all taken care of for them by a different provider. This is a smart idea if you don’t have enough time to track things yourself. Bad records can mean you make mistakes, which will mean you either pay too much tax or don’t pay enough and end up incurring penalty charges again.
By all means, there are dozens of tax filing mistakes entrepreneurs make every year. These four are the most common with the biggest consequences. Learning and researching more about them will help you avoid them next year.
