Have you ever made one of the seven common mistakes on your taxes? If you have, you know it’s not a great feeling. Your heart probably sank and you began questioning what it means for your business. If you’ve never had this experience, consider yourself lucky.
While it is definitely not a good feeling, the truth is, when entrepreneurs do their own taxes mistakes are common.
The good news is, they are easily avoidable. You just have to take the right steps to make sure you are filing correctly.
7 Common Tax Mistakes for Entrepreneurs
1. Choosing the Wrong Structure
Before you go through with your taxes, you need to make sure your business is categorized under the right structure.
The five business structures are:
- Limited Liability Company (LLC)
- Sole proprietorships
The structure you choose is significant because each one is taxed differently, and if your business is registered under the wrong structure, it could lead to major financial issues.
How to avoid choosing the wrong structure: Research which structure is right for your business and periodically review to ensure it is still the right choice.
2. Overlooking Deductions
There are so many different ways to save on your taxes through deductions. You can qualify for deductions in categories like:
- Advertising and promotion
- Moving expenses
- Salaries and benefits
- Home Office
- Rent Expenses
- And more
To qualify, you’ll likely have to meet a list of requirements, some more complicated than others.
However, there are plenty of deductions that could save you money. Don’t be one of the businesses that miss out on opportunities because they are unaware of deductions they qualify for.
How to avoid overlooking deductions: Search for industry-specific deductions and find what you may already qualify for. Then start looking for attainable deductions you can qualify for by easily meeting the criteria.
3. Inaccurate Income Reporting
As an entrepreneur, it can be easy for you to inaccurately report your income. Here are some of the common ways to inaccurately report income:
- This happens when you do not subtract sales tax before reporting the income from sales or when you do not factor in the cost of goods in your income
- Using the wrong forms to file
- Failing to report altogether
How to avoid inaccurate income reporting: Get yourself up-to-date on all of the income rules, know what needs to be reported, and know which forms you need to report with.
4. Inaccurate Tracking/Reporting
The key to filing taxes accurately is tracking and reporting. All of the money coming in and out of your business needs to be accounted for.
One of the most common places for inaccurate tracking to occur is within your expenses. Oftentimes business owners will forget to subtract deductions or they’ll mix up business and personal expenses.
How to avoid inaccurate tracking/reporting: Keep a detailed record of your expenses and record your transactions as you make them.
5. Missing Important Deadlines
Entrepreneurs, like yourself, get busy. It’s easy for important deadlines to slip through the cracks, and unfortunately, sometimes this leads to forgetting to file altogether.
Missing these important tax deadlines results in fees and penalties, which means unnecessary spending because of a silly mistake.
How to avoid missing important deadlines: Create a calendar and fill it with due dates and deadlines. If you have to, set reminders on your phone or laptop to get things done.
6. Avoiding Tax Planning
As a busy entrepreneur, tax planning probably sounds almost as exhausting as actually filing your taxes, but it’s incredibly important.
A strong tax plan sets you up for a strong tax year and helps you avoid making all of the common mistakes above.
Some benefits of tax planning include:
- Saving time and money
- Reducing your tax liability
- Setting your business up for growth
If you haven’t begun crafting your tax plan for 2022, get started now. You have plenty of time to figure out what options will work best for your business.
How to confidently approach tax planning: Be proactive and create a tax plan. Try relying on a trusted accountant to help you build a tax plan geared towards saving money and growing your business.
7. The Most Common Mistake: Doing Your Taxes on Your Own
Trying to do your taxes on your own will likely result in you making one of the mistakes above. It can be a tricky task and with so many other things on your plate, it will benefit you to turn to a trusted accountant, like Tiffany Phillips CPA.
They will make sure you have a proper tax plan in place that helps you avoid common mistakes. Not only that, but they will work with you to make sure your taxes are accurate and you are saving as much money as possible.
Contact Tiffany Phillips CPA today to learn more ways she can help you save!