The last thing every business owner would want is to make mistakes when filing taxes. Besides getting another pile of work to be done, making mistakes could mean penalty payments.
Making one’s way through the tax season can be extremely stressful, especially when you do not know what to do. It is supposedly a straightforward process, but the proper knowledge, skills, and experience are needed to handle such a massive task.
To help you out, we have picked up five common tax filing mistakes businesses and their tax preparers make so you know which ones to watch out for.
1. Wrong Business Status Choice in Filing Taxes
The most common mistake businesses make is choosing the wrong business status. There are several business structures one can choose from. The most common ones include sole proprietorship, partnership, corporation, S corporation, Limited Liability Company, and C corporation.
Each business structure has its advantages and disadvantages. Make sure you know what you are getting into and the tax implications that come with your business type. The consequence of choosing the wrong one is that you will have to file a separate tax return for your business and increase its costs.
2. Incorrect Submission of Forms or Payments
Next, it is crucial to make sure your payments are made correctly. There are several forms and fees that need to be either paid or submitted via mail. Make sure that you have the suitable form filled out correctly.
If you are filing your taxes via mail, make sure you figure out what you are mailing and when you should send it to the IRS. When it is due and where you should be sending it. If you are filing electronically, make sure you have all your information ready to avoid oversights.
3. Making Wrong Computation
Calculations are an essential part of filing taxes. Make sure you know what to include. Make sure you are not overpaying or underpaying.
Before filing your taxes, make sure you know what needs to be included. Your business will be required to pay taxes on its gross receipts. You need to make sure that the correct amounts are subtracted, like taxes, freight, and supplies. Make sure you are not double-counting these amounts, or you will end up with the wrong computation and more penalties later.
4. Not Getting the Right Deductions
Business owners are entitled to some deductions that are not available to an individual. They get deductions for business use of their home, vehicle, and other things they need. They can claim those business deductions by using Form 2106. It’s best to ensure that they claim all the business deductions they are entitled to get.
If you have deductions, you also get to deduct any expenses directly related to the business. They help decrease the taxable income and help achieve a lower tax rate.
5. Using the Wrong Accounting Method
Many small businesses do not take advantage of the cash basis and accrual basis of accounting. That is because very many small businesses do not have the capability to do so. To ensure you are saving taxes, have the correct accounting methods, and keep track of the right information. Do not guess when it comes to number crunching.
Conclusion in Filing Taxes
Doing the tax filing correctly is not just a matter of saving time. It is a matter of saving money. Be sure to get the correct information and ensure you are not missing anything. It is better to be safe than sorry and stress about your tax filing.
Mistakes can happen to anyone. Whether you are a business owner who wants to DIY or a professional accountant who handles a lot of businesses’ taxes, make sure you avoid the mistakes mentioned above.
Consider utilizing the best professional tax software. Keystone Tax Solution is a professional tax software industry leader with over 15 years of experience. We offer 100% web-based tax software to help thousands of tax professionals in the US do their job. Get a free demo now.
