Big Tax Mistakes Small Business Owners Make when starting
Every small business lacks the experience and expertise to handle everything on its own. Along with this, there are also money constraints because of which they cannot hire employees or outsource every service.
Small businesses often make mistakes in taxes, which need to be avoided at any cost. Listed below are some big tax mistakes small business owners make:
- Choosing the wrong form of business- Choosing the wrong form of business always becomes a hurdle in tax filing. There is no right form of business to help with the taxes. While setting up the business, usually, the owners are in a hurry to get the business up and running quickly. Most often, the owners check the box on the registration form that seems right at the time but without a clear grasp of the associated tax liabilities and benefits. Only when they go to file their tax return or apply for a loan, do they realize that they have set up the entity incorrectly.
- Missing deadlines- Taxes are hardly on mind when running a small business. There are a million other things to do, so the owners can easily forget about the deadline for the taxes. But If taxes are not paid on time, business is apt to be levied penalties. In cases when the taxes are late, and you have a valid explanation for missing the deadline — you can request a tax-filing extension from the IRS to give you a little more time and avoid the penalties. Though it’s a free service, it entails way more formalities than filing a tax return.
- Not paying estimated taxes - Small businesses need to pay an estimated $1,000 or more tax when their return is filed to the IRS. But, paying these quarterly taxes throughout the year is the bane of many business owners, who may either fail to comply or underestimate taxes and end up owing penalties. To pay the estimated taxes, they can use Form 1040-ES to figure out the estimated taxes. But make sure to account for all of the taxes you will owe — including the self-employment tax, social security, and Medicare taxes.
- Not claiming the right business deductions- Many small business owners neglect to take advantage of certain deductions unless they have a good understanding of tax codes and miss out on the opportunity to save money. In many cases, small business owners pay more tax than they owe. The IRS allows certain deductions for small businesses in the U.S., including advertising, business meals, office furniture and supplies, insurance, startup expenses, travel expenses, licenses, etc. Be active while planning your taxes and figure out which deductions your business qualifies for so you minimize your tax bill.
- Mixing business and personal expenses- Mixing business and personal expenses, one can create a mess for their business which also becomes a hurdle in tax filling. So, it is advisable to keep separate accounts and credit cards for your business expenses and personal use. This will make filing taxes easier and also help to track deductible expenses.
NSKT Global is a consulting firm that helps businesses file taxes with all the possible deductions. Though businesses have to file taxes once a year, the process can be complicated. So, one of the best things a small business can do is outsource the tax services from NSKT Global to get the best tax services for your small services.