Did you know that one in every six dollars due and owed in federal taxes is unpaid? Unpaid taxes are likely to be roughly three-quarters of the total annual federal budget deficit every year.
Not all unpaid tax is done on purpose. Some are done by accident. Filing your small business’s tax return may be a scary task that you want to postpone until the last minute. But, don’t do it; errors occur when you are in a hurry, resulting in interest and fees, penalties, or unwanted IRS attention.
Simple steps can avoid costly tax planning mistakes with some basic know-how and planning. Here are six tax planning mistakes and how to avoid them.
1. Tax Planning Mistakes — Filing Late
It is critical to meet tax filing deadlines. This is to prevent paying penalties such as:
- The IRS from imposing a 5 percent per month penalty which rises until the filing of your return
- A further 6 percent interest penalty
- A late payment penalty
You may request a filing extension, but you must still pay a portion by the original deadline. Therefore, it is best to prevent any issues by organizing and filing on time.
2. Not Paying Estimated Tax
Paying large amounts to the government is a pain for many business owners. Estimated taxpayers should account for all taxes owed, including:
- Medicare taxes
- Self-employment tax
Tax penalties can result from not paying quarterly taxes. Tax filing penalties are worse than overpaying taxes.
3. Not Having Tax Planning Documents
Using Spreadsheets to track your income, expenses, and receipts may suffice when you first start. However, as your business grows, you will require professional help. Your financials must be up to date, accurate, and all in one place for you to make sound tax and cash decisions.
4. Not Tracking Business and Personal Expenses Separately
It’s essential to keep your business costs and personal costs separate. You can do this by giving your business its bank account and credit card and only using that credit card for work expenses.
Even if you buy a business or personal products at a store, use the relevant pay for them separately to keep track of those costs.
5. Not Reporting All of Your Income
The Internal Revenue Service (IRS) uses computer software to compare what you told them you received as an income with what they have on their records. Of course, all revenue needs to be listed on your tax returns, but putting it in the wrong section could also lead to more scrutiny from the IRS.
6. Trying To Do It All Yourself
It might be tempting to do everything yourself to save money, but if you don’t know what you’re doing, it could cost you more time and money.
It is a good idea to procure the services of a professional bookkeeper or an accountant to ensure that a good tax planning strategy is in place before tax time. That way, you can avoid any costly surprises!
Do It Right!
How you handle your bookkeeping and taxes can make or break your success as a business owner. First, make sure you avoid the above-mentioned tax planning mistakes small business owners make.
Does your North County San Diego business need help with its tax returns? Then contact us. We have the necessary experience and expertise to prepare your income tax returns fast and accurately!