Introduction
Running a small business is challenging enough without the added stress of tax complications. Unfortunately, many business owners make avoidable mistakes that can cost them thousands of dollars or even trigger an IRS audit.
Mistake #1: Mixing Personal and Business Finances
One of the most common and serious mistakes is failing to separate personal and business finances.
Why It Is a Problem:
- Makes bookkeeping difficult
- Can jeopardize liability protection
- Raises red flags during audits
The Solution:
- Open a dedicated business bank account
- Get a business credit card
- Pay yourself a salary (for corporations)
Mistake #2: Poor Record Keeping
The IRS requires you to keep records for at least 3-7 years. Without proper documentation, you could lose valuable deductions.
"The burden of proof is on the taxpayer. If you cannot prove it, you cannot deduct it."
What to Keep:
- Receipts for all business expenses
- Bank and credit card statements
- Invoices and contracts
- Mileage logs
Mistake #3: Missing Quarterly Estimated Taxes
If you expect to owe $1,000 or more in taxes, you must make quarterly estimated payments.
| Quarter | Due Date |
|---|---|
| Q1 | April 15 |
| Q2 | June 15 |
| Q3 | September 15 |
| Q4 | January 15 |
Penalty Alert: Underpayment can result in interest charges and penalties!
Mistake #4: Misclassifying Workers
Incorrectly classifying employees as independent contractors can lead to:
- Back taxes and penalties
- Unpaid employment taxes
- Potential lawsuits
Key Differences:
Employees:
- You control how they work
- You provide tools and equipment
- They work regular hours
Independent Contractors:
- Control their own methods
- Use their own equipment
- Work on project basis
Mistake #5: Overlooking Deductible Expenses
Many business owners leave money on the table by forgetting to deduct legitimate expenses:
- Home office expenses
- Professional development
- Business insurance premiums
- Marketing and advertising
- Bank fees and interest
- Subscriptions and software
Mistake #6: Not Planning for Major Purchases
Strategic timing of large purchases can significantly impact your tax liability.
Strategies to Consider:
- Section 179 Deduction: Deduct full cost of qualifying equipment in the purchase year
- Bonus Depreciation: Additional first-year depreciation
- Year-End Planning: Time purchases to maximize deductions
Mistake #7: DIY Complex Tax Situations
While tax software is helpful for simple returns, complex business situations often require professional guidance.
When to Hire a Professional:
- Multi-state operations
- International transactions
- Significant changes in business structure
- IRS notices or audits
Take Action Today
Do not let these common mistakes cost your business. Schedule a consultation with Tax Genius LLC to ensure your business taxes are handled correctly.