Learn about some of the common tax mistakes entrepreneurs make so you don’t make the same mistake on your taxes.
When you’re an entrepreneur, you have different tax obligations than most people do. Because of this, it’s especially important to make sure you get your taxes done right. So what are your obligations as an entrepreneur? For starters, self-employed individuals have to pay their own taxes since they don’t have an employer to deduct them. Not only that, an entrepreneur who owns a business will have tax obligations regarding the business and its employees, which can get a bit complicated.
The last thing you want is to make a costly mistake on your taxes. Here are some of the most common mistakes entrepreneurs make with their tax filing.
Doing It Alone
There are a lot of things that are worth learning in life—and even things you can do very well without being an “expert”—but taxes are best left to professionals. Sure you could most likely get through your taxes, but there are two problems with that. For one, you’re much more likely to make a mistake on your tax return, which could cause you to be audited in the future. Secondly, a tax professional can help you get the most off of your tax with deductions.
This is especially a problem for startups with a few employees. If you’re paying employee taxes for your business, you should definitely hire a tax professional.
Another common mistake with taxes and startups is entrepreneurs who choose the wrong entity. While an LLC and S corporation do have some similarities, there are stark differences between the two. The type of entity you file as could affect how much your business has to pay in taxes, so it’s important to make sure you choose the right one.
Combining Business and Personal
Part of being a savvy startup owner is properly using business expenses. You can write something off as a business expense when it was used to conduct business. This includes things like business lunches with potential clients, new supplies for your office, and more. What it doesn’t include is the food you eat at home, the computer you bought to play video games on, and other similar personal purchases. Mixing these purchases in an attempt to get a larger deduction will get you audited in the future, so don’t do it.
Keeping Poor Records
Speaking of deducting business lunches and office supplies, the only way you can do that is if you keep comprehensive records for everything business-related that you do. If you don’t have accurate records and the IRS decides to audit you down the line, you will have no way of proving to them that you actually spent that money on business expenses, and they will probably assume you’re trying to scam them.
Normally taxes are due April 15 every year, but things are a bit different when you own a business. Business owners are expected to pay what are called quarterly taxes, which are due January 15, April 15, June 15, and September 15. If you do not pay these quarterly taxes on time, you may be subject to an audit and additional interest charges and late payment penalties.