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If you run a small business, you will need to file business taxes every year. In order to avoid paying back taxes or having penalties from the Internal Revenue Service (IRS), make sure you don't make any of the following mistakes.
Failing to Track Your Expenses
Filing taxes properly all starts with how you track your income and expenses throughout the year. A lot of your business expenses can be deducted from your taxes, which helps to reduce how much you owe. However, if you estimate them poorly or not at all, you lose those deductions. Not only should you track every cent used for business purposes and detail what it was used for, but make sure to save all your receipts. The IRS might request copies of these receipts to validate your deductions.
Not Paying Your Taxes on Time
If you are new to filing business taxes, you might not realize how much money to put aside to pay your taxes. It is now the end of the year and you realize you owe thousands of dollars, but don't have enough money to send to the IRS. Failing to pay your taxes on time could give you a massive penalty, not to mention additional penalties for every month you pay your taxes late. Work closely with an accountant to determine your estimated taxes and pay your taxes quarterly, not annually.
Filing the Taxes Without Help
Speaking of an accountant, you should really have one when filing business taxes. Even if you used to file your own taxes when you worked as a salary employee, it is an entirely different ballgame with business taxes. They get very complicated whether you own a small retail store or work as a freelance contractor. The accountant helps you throughout the year with tracking your expenses and planning for
Combining Business and Personal Accounts
When you own your own business, it is tempting to continue using your personal bank account, but this is a big mistake. You need to have a separate checking and savings account for your business. Multiple savings accounts are better because one can be used for tax savings, while the other is used for future business investments. You should never use your personal account for business purposes and vice versa. With a business account, your accountant only needs to worry about that account when filing your business taxes. It simplifies and streamlines the entire process. To learn more about accounting, contact a company like James Gioia & Company PC.
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