The Top 5 Mistakes Small Business Owners Make During Tax SeasonAvoid falling prey to these classic tax mistakes many entrepreneurs make.
Sweating tax season?
Maybe you’ve filed incorrectly in the past or owed more than you thought. Perhaps your accountant was incompetent. Even if you’ve never had an issue with taxes, filing returns can bring anxiety and stress to a business owner.
To set your mind at ease, you need to know what mistakes to avoid to help ensure you’re receiving the maximum number of deductions and benefits possible. NCR Silver asked Yoni Solomon, a Los Angeles-based enrolled tax agent (EA), to share some of the most common blunders he’s seen small business owners make during the tax season.
Not paying on time
According to Solomon, small business owners typically believe that if they file a tax extension, it means they have until October to pay. But the extension only allows them to file the return late; the your first quarterly estimated tax payment for the current year is still due in April.
By not making their payment on time, many small businesses get hit with penalties – half a percentage in interest of how much is owed – which can end up costing the owners thousands of dollars, said Solomon.
If it does look like you’ll need to get an extension, don’t fret. Requesting a tax extension won’t increase your risk of an audit, he said.
“This is a complete myth. There is no truth to it at all,” said Solomon. Instead of “going crazy trying to get it in on time,” take the time to make sure your taxes are done right — even if they’re a little late.
In Solomon’s experience, most owners are not organized when it comes to their day-to-day bookkeeping of their small business. He advised creating and following a structured approach for accounting so it’s easier when tax time comes along.
For example, a business owner could have several different credit cards and may charge business expenses to their personal cards and vice versa, which becomes a mess. A best practice, according to Solomon, is dedicating a single credit card for business expenses.
“It isolates your business spending, which makes it a whole lot easier. It’s a simple thing but it can go a long way.”
Not consulting an accountant before big purchases
Solomon said many business owners will often make large purchases without first checking with their CPA or tax advisor to see if it’s a good move and the timing is right.
For example, say you needed a vehicle for your business. Many owners may go out and buy a car instead of leasing one, even though leasing is always better for tax purposes, he said.
“When in doubt, just consult your accountant. That’s why you have him.”
Doing taxes themselves
Solomon said many of his clients come to him after having done their own taxes in the past — and they usually have missed a lot of deductions and credits they could have taken.
“For most small businesses, they’re on a budget, and they don’t see savings. It’s not as real to them,” he said.
So while DIY taxes may save you a couple hundred dollars upfront to hire an accountant, you could be missing out on significant, long-term tax savings.
Relying on advice from non-experts
One phrase Solomon often hears starts with “My buddy said if I…” and usually what follows is a completely false statement. While seeking the advice of others is helpful, when it comes to your taxes, small business owners should only seek out advice from professionals with credentials, such as a CPA, EA, attorney or tax accountant.
“If you hear something, ask a professional instead of just believing it,” he advised. “If your accountant bills you for every question you ask, just Google it. Don’t just go off what a buddy says.”