Four common tax errors that can be costly for small businesses

Tax tips from the IRS

You may think of doing your taxes as just another item to quickly cross off your to-do list.

But, this approach could leave you open to mistakes when filing and paying taxes.

Here are a few mistakes small business owners should avoid.

1. Underpaying estimated taxes

Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

2. Depositing employment taxes

Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers.  If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

3. Filing late

Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

4. Not separating business and personal expenses 

It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.

For more information, see the IRS pages on business expenses and tax withholding and estimated tax.

Source: IRS.

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