As a small business owner with a lot on your plate, the last thing you need is to make any tax filing mistakes that could bring the IRS to your doorstep.
Often getting audited by the IRS isn’t always the result of intentional acts. Here are five of the most common tax filing mistakes that are likely to get you a dreaded letter from the IRS asking for more information:
1. Under-Reporting Income
Whether you are a freelancer, a brick-and-mortar store, or something in between, all business income needs to be reported to the IRS. Your business risks steep fines for not reporting income, even if it was an oversight or a lack of knowledge.
If you do have to file back tax returns, you may be limited on the amount and types of deductions you can take. So it makes sense to do it right the first time.
2. Over-Reporting Expenses
When you run a business, keep your personal expenses separate, so there is no confusion or temptation to over-report things like travel or business supplies. For business expenses to be deductible, they must be necessary and ordinary parts of your business.
3. Not Paying the Self-Employment Tax
Just as regular employers must withhold Social Security and Medicare taxes from wages, a self-employed person must pay a self-employment (SE) tax that consists of Social Security and Medicare taxes paid to the U.S. Treasury. A self-employed person can also deduct the employer-equivalent part of the SE tax when they calculate their AGI.
4. Failing to Report “Trust Fund Taxes”
If you have employees, you are obligated to withhold certain taxes from their earnings. Those taxes are held “in trust” until they are paid to the U.S. Treasury, which is why they are called “trust fund taxes.” The withholdings include Social Security, Medicare, and income taxes. If you withhold and then don’t pay the taxes, you could get in a lot of trouble.
5. Not Estimated Paying Quarterly Taxes
Most small business owners are required to pay estimated taxes to the IRS quarterly. This requirement is in place for any business that expects a tax liability of $1,000 or more annually. If you fall into this category, you need to make these quarterly payments and tax filings, or you could be penalized.
Get Qualified Small Business Accounting and Tax Planning Assistance
As a small business owner, you shouldn’t have to worry about potential conflicts with the IRS or even meeting government-imposed deadlines. At Orcutt & Co., we specialize in serving the needs of small business clients. Specifically, our CPAs and Accountants provide accounting, bookkeeping, payroll, and tax planning services so that you can focus on growing your business. Contact us today to learn more about our services.