5 Tax Mistakes To Avoid Making in Your Small Business
Tax season can be a particularly tricky time for small business owners. While it’s tempting to race through your filing just to get it over with, certain missteps can cost you big—both in time and money. Understanding and avoiding these common tax mistakes can help your business stay on track without added stress.
Mixing Personal and Business Expenses
It might seem harmless to tap the same credit card for your grocery run and business purchases, but it can snowball into a pile of bookkeeping problems. Keeping your finances separate isn’t just about staying organized—it helps provide clear documentation in case of an audit. Creating a dedicated business bank account and credit card is a simple way to stop this mistake in its tracks.
Forgetting To Track Deductions
Business deductions are a great way to reduce your taxable income, but many owners miss opportunities by failing to record them properly. Everything from home office expenses to travel costs can count as long as they’re directly tied to your business. Use apps or software to log your expenses consistently. That way, you’ll have every eligible deduction at your fingertips come filing time.
Misclassifying Employees
If your business hires help, the lines between independent contractors and employees can easily blur. Hiring someone as a contractor when they meet the government’s definition of an employee can trigger penalties and back taxes. Make sure to review classification rules closely and understand the ongoing responsibilities for both categories.
Overlooking Estimated Tax Payments
Taxes aren’t just a once-a-year activity for small business owners. Quarterly estimated tax payments often get sidelined due to other pressing priorities, but ignoring them can lead to interest and penalty charges. Stay on a reliable schedule by calculating how much you owe ahead of time based on your income and set reminders to keep your payments punctual.
Misunderstanding Funding and Tax Implications
Access to small business capital funding is a lifeline for many growing businesses. But it’s important to know how loans and investments impact your tax situation. For instance, most loans aren’t taxable, but failing to document correctly or misunderstanding repayment scenarios can cause major headaches. A quick conversation with a tax advisor can help you stay informed and avoid potential pitfalls.
Small tax mistakes can lead to big troubles for your business, but many of them are avoidable with a little care and attention. Understanding your financial situation inside and out contributes to smoother tax seasons down the road. No one enjoys dealing with taxes, but a bit of effort today means less stress tomorrow—and more time to focus on what matters most, like growing your business.
Want to study up on financing options for your new business as tax season approaches? Pango Financial’s funding solutions tool is the resource for you.