Avoiding Common Tax Pitfalls: An 8-Step Plan to Help Small Businesses Ensure Accurate Tax Filings
Small businesses often face challenges when it comes to tax filings and those challenges can — and do! — cause considerable stress. In fact, research tells us that 80% of small business owners in the U.S. feel stressed during tax season with almost 63% of them rating that stress at three or more on a scale of five.
We’re standing by to remove the burden of tax stress from your shoulders and, in case you prefer the DIY approach, we’ve also created this little checklist to help you ensure that your tax filings are accurate and on time.
What should my business do to successfully file taxes?
Filing taxes as a small business shouldn’t be complicated; however, there are common pitfalls that you should be aware of so that you can avoid them. The following list of action items should help keep you on the straight and narrow, away from the auditing eyes of the IRS.
- Organize financial records: Maintaining organized financial records is the foundation of accurate tax filings. Keep track of income, expenses, receipts, and invoices throughout the year. Utilize accounting software or hire a professional to streamline this process.
- Stay informed about tax regulations: Tax laws and regulations are subject to change. Stay informed about updates that may impact your business. Regularly check for changes in tax rates, deductions, and credits relevant to your industry.
- Classify workers correctly: Misclassifying workers as independent contractors instead of employees (or vice versa) can lead to tax complications. Understand the criteria for each classification and ensure accurate categorization to avoid legal and financial consequences.
- Know your deductible expenses: Identify all eligible business expenses that can be deducted to minimize taxable income. Common deductible expenses include office supplies, travel costs, and professional fees. Keep detailed records to support these deductions in case of an audit.
- Keep personal and small business finances separate: Mixing personal and business finances is a common mistake. Establish separate bank accounts and credit cards for your business to maintain clarity and simplify the tax filing process.
- Take advantage of tax credits: Explore available tax credits that can benefit your small business. Research credits related to energy efficiency, employee benefits, and research and development. Taking advantage of these opportunities can significantly reduce your tax liability.
- Plan for estimated taxes: Small businesses are often required to pay estimated taxes throughout the year. Plan accordingly to avoid penalties. Monitor your income and expenses to calculate estimated tax payments accurately. Pro-tip: allocating a special savings account for future tax payments is a great way to keep on top of them and not be caught off guard when the bill comes due.
- Consult with tax professionals: Okay, we said this was for the DIY set, but we just want to remind you that it is possible and often advisable to seek guidance from tax professionals who specialize in small business taxation. Our team’s expertise can help you navigate complex tax issues, optimize deductions, and ensure compliance with current tax laws.
“I worked with Joseph Rodrigues/Cove Professional Services on my 2021 tax returns thus far, and he is a phenomenal accountant! Joseph came highly recommended by my brother and exceeded all my expectations. He is professional, knowledgeable, timely, and responsive. He is personable, helpful, kind, and patient. He guided me through the steps and took the time to help me understand the process. He helped make everything easier for me. I highly recommend Joseph as your accountant!” — Will Oei
It’s essential that you accurately file your taxes for the sake of your small business’ financial well-being. You can do this by staying organized, informed, and proactive. Or, you can enlist the help of Cove Professional Services for worry-free tax preparation.
We have your back.