5 Common Tax Planning Mistakes

by | Jul 28, 2022

5 Common Tax Planning Mistakes

by | Jul 28, 2022

Are you certain you’re not making tax planning mistakes in your business?

As an entrepreneur, you often have to wear many hats and juggle many balls. You must manage your team, focus on your product or service, and find new ways to grow your business.

It’s no wonder many entrepreneurs tend to put their tax planning on the back burner. This can be a costly mistake both in terms of money and time. Tax planning is an integral part of running a successful business. It should therefore be given the attention it deserves. And not just when it’s time to pay them.

When correctly done, tax planning can save you a lot of money. It can also help you avoid problems with the tax authorities.

Unfortunately, many entrepreneurs expose themselves to potential landmines and pitfalls by making common mistakes in their tax planning. 

Here are five of the most common mistakes entrepreneurs make when planning their taxes and how to avoid them.

Common Tax Planning Mistakes

1. Waiting Until the Last Minute

Business owners must make estimated quarterly tax payments on their business earnings every year. These payments are due four times a year, on April 15, June 15, September 15, and January 15 of the following year.

Staying on top of your estimated tax payments helps you avoid penalties and interest charges. It also gives you a better idea of how much you’ll owe come tax time.

Unfortunately, many business owners wait until the last minute to make their quarterly payments. This can lead to costly penalties and interest charges that can throw off your entire budget and set next year’s tax plan off to a bad start. If you’re going to be late with a payment, it’s better to file for an extension than to wait until the last minute.

Also, some business owners tend to wait until the last minute to find a tax service to help them with their taxes. If you wait until the final days to work on your taxes, you’re likely to make mistakes that could cost you money. It’s important to start early and work with a tax service that can help you navigate the process.

It also gives them time to understand your business and find possible deductions and credits you may be missing. This can help you save a significant amount of money on your tax bill, leaving you more money to reinvest in your business.

2. Keeping Work and Life Too Separate

Sure, it’s important to keep your personal and business finances separate. This makes it easier to track your expenses and deduct them come tax time. But you also don’t want to keep them too separate.

If you have a home office, for example, you can deduct a portion of your rent or mortgage interest and utilities as business expenses. You can also deduct a portion of your car expenses if you use your car for business purposes.

You’ll need to keep good records of your expenses to get these deductions. This means tracking how much you spend on gas, oil changes, repairs, etc. The Augusta Rule can help you determine what portion of these expenses you can deduct. 

But if you don’t keep track of your expenses, you may be missing out on deductions that could save you money.

Another tax-saving strategy is to include your children in your business. If you have a family-owned business, you can hire and pay your kids to work for you. This can help you save on payroll taxes and get some deductions for your business.

Of course, you don’t want to go overboard with this strategy. The IRS has rules in place to prevent abuse. But, if used correctly, hiring and paying your kids can be a great way to save on taxes.

3. Not Having a Strategy

A tax strategy is a plan of action that you take to minimize your taxes. This could include things like timing your income, making strategic investments, and taking advantage of tax deductions and credits. It helps you pay the least amount of tax allowable by law, ethically and morally.

Unfortunately, many entrepreneurs don’t have a tax strategy. They simply file their taxes and pay whatever they owe. But, if you take the time to develop a tax strategy, you could save yourself a lot of money.

There are many different ways to reduce your taxes. You can invest in a retirement account,  purchase equipment for your business, or hire family members. The key is to find the right strategies for your business and implement them in a way that saves you money.

Not having a tax strategy is a mistake that could cost you thousands of dollars. If you’re not sure where to start, work with a tax service or accountant to develop a plan that works for you.

4. Choosing a Firm for the Wrong Reason(s)

Taxes should be top of mind for any entrepreneur, yet so many wait until the last minute to find a firm to help them. This often leads to making rushed decisions and choosing a firm for the wrong reasons.

When you are searching for the fastest solution that can file on time,  you may not be getting the best solution for your business. The cheapest firm might not be the best either. Instead, focus on finding a firm that can provide the best value for your money.

It is essential to understand what you need from a tax service before making a decision. For example, do you need help with bookkeeping? Do you only need someone to file your taxes? What type of business do you have? The answers to these questions will help you find the right firm for your business.

Be sure to shop around and get recommendations from other entrepreneurs. Look for firms that have experience working with businesses like yours.

You’ll also want to get professionals who can spend time on your business and understand your tax nexus to help you save money by taking advantage of every deduction available.

5. Not Expecting a Detailed Plan

If your tax service doesn’t ask questions about your business or give you a detailed plan, they’re not doing their job. A good tax firm will want to know everything about your business so they can provide the best possible service.

This includes understanding your business model, how your business makes money, and what deductions and credits you may be eligible for. The more information you can give them, the better.

A good tax plan should be tailored to your specific business and goals. It should include a detailed analysis of your tax situation and recommended strategies to save you money.

Don’t settle for a one-size-fits-all solution. 

Make sure your tax service takes the time to understand your business and provides a detailed plan to help you save money on taxes.

Work with a Qualified Accounting Solution

Taxes are a complex and ever-changing topic, which is why it’s so important to work with a professional tax service. They can help you navigate the complexities of the tax code and find ways to save money on your taxes. 

When choosing a tax service, be sure to work with a qualified accountant or CPA. They will have the experience and knowledge to help you make the right decisions for your business.

Phillips Business Group is a qualified accounting solution that can help you save money on your taxes. We have experience helping businesses like yours reduce their taxes. Since 2016, we’ve helped our clients save an average of over $97,398 on their taxes.

Contact us today if you are ready to start saving money on your taxes. We’ll help you develop a tax strategy that works for your business and saves money.

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