DIY Business Tax Filing: 5 Mistakes You Can’t Afford to Make
If you ever had the impression that do-it-yourself tax filers were a rarity, let’s put that thought to rest. More than half of Americans either use paid or free tax software to file all by themselves. So you shouldn’t be surprised to find that many small business owners do the same.
However, it’s one thing to DIY your personal taxes, which for W-2 employees can be pretty straightforward. It’s another to DIY your small business taxes, which even at their simplest can have plenty of wrinkles. And given the relative difficulty, the last thing you want to do is make a costly error.
To help you avoid this scenario, here are five common mistakes people make when tackling their small business’s tax-filing duties on their own.
1. Basic Data Mistakes
You need to double- and triple-check a host of simple data points when you file your taxes. Make sure names and Social Security numbers are correct. Check that wages, and other financial sums from any documents have been properly entered. Make sure any bank account information is correctly written down. And don’t forget to sign wherever it’s required.
2. Incorrect Calculations
Did you add where you needed to subtract? Multiplied where you needed to divide? Maybe forgot to carry the 7? They might be innocent mistakes, but even small gaffes can snowball into significant discrepancies. And that’s all it takes for the IRS to ask for a closer look.
Naturally, you should be careful. But better than that, try to reduce the potential for human error wherever you can. Tax prep software, for instance, will typically do the math for you.
3. Claiming Deductions, Credits and Write-Offs You’re Not Qualified to Receive
Every small business can cut down on their tax liabilities by claiming deductions (like these common deductible business expenses), tax credits and other write-offs.
But you’ll create a big liability — namely, a knock on the door by the IRS — by claiming them when you don’t merit them.
These write-offs can be disqualified in a number of ways. You might not reach a certain dollar-spend threshold. You might not meet certain criteria, such as having too many employees or not belonging to a particular industry. Or you might just wrongly assume that an expense is deductible when it isn’t. Again, tax prep software can often help you determine whether you’ve met the standards necessary to claim these tax breaks.
4. Not Claiming Deductions, Credits and Write-Offs You’re Qualified to Receive
This won’t get you in trouble with the IRS, but it will cost you.
If you’re a DIY small business tax filer, it’s very possible you’re simply not aware of all the deductions, credits and other breaks you’re entitled to. For instance, did you know that new businesses can deduct up to $5,000 in incorporation fees, legal fees, market research and more incurred before the business begins operations? It’s true, and you can read more about it on IRS.gov.
That’s just one example, but there are many, many more. And missing out on these could shortchange your small business by many thousands of dollars. Tax prep software can help you sniff out some of these, too, but how many of these breaks they’re aware of differs from one program to the next.
5. Commingling Business and Personal Expenses
This isn’t a mistake you make at filing time — it’s a mistake you make throughout the calendar year. You might not feel compelled to keep your business and personal expenses separate, but the IRS draws a pretty clear line. So come filing time, if you can’t tell your business expenses from your personal ones, you could easily make vital mistakes (including incorrectly claiming a deduction or credit) that end up triggering an audit.
Our advice here is simple: Keep them separated. Use different credit cards, checking accounts and other financial products for your personal and business finances.
One Way to Reduce All These Risks? Ask a Pro
Tax software is an important tool that can help small businesses be more organized and can even tackle easier filing duties. But if you want high confidence that your tax filing will be mistake-free, and that you’ll maximize any possible tax savings, you should consider asking for help from professionals.
McManamon & Co.’s tax services can assist with federal, state and local tax obligations, as well as payroll taxes for both the business and business owners. We also offer compliance services, including preparing tax returns for businesses, individuals, estates and trusts.
Let us get you through the tax season scam-free. Call McManamon at 440.892.8900 or contact us online today.
Tags: McManamon, McManamon & Co., small business, small business taxes, taxes | Posted in McManamon & Co., small business, small business taxes, taxes