Tax mistakes are not uncommon. Lots of people make them. They can be costly if you don’t have someone to help you through the rough spots. Even knowing that you have someone to guide you through the consequences resulting from a tax mistake, you still want to avoid making them in the first place, if at all possible.
So how do small business owners go about avoiding what could be costly tax errors? Here are some of the most common mistakes made by small business owners and a little advice on avoiding them.
You Categorized Workers Incorrectly
Especially if you are classifying your workers as 1099 contractors or employees, you may need to reconsider your classifications. If you are supplying all the tools, and you control when, where, and how the work is done, your worker should probably be classified as an employee.
And don’t treat salaries and wages the same as you would contract payments. Salaries and wages are subject to deductions, contractor payments are not.
You Didn’t Fill Out Your 1099-Misc or Your W-2 Forms
By the 31st of January of the next year, you must file a Form 1099 Misc whenever you pay more than $600 to an independent contractor. On box 7 of the form, there needs to be an amount to list, however. W-2s need to be filed for employees. Always make sure that these are filed on time. Employees and contractors need to be sent copies. Mistakes should be corrected ASAP.
You Blended Your Personal and Your Business Banking
It’s easy to do, mixing accounts, credit cards, etc. Best practice is to have one bank account for personal, and one account for business. The same should be done for credit cards – one for business, one for personal. This will help avoid confusion.
You Filed Your Taxes Late – or Not at All
Oops. The tax filing deadline came and went, and you didn’t file on time. As bad as this may seem, it is certainly not the end of the world. People get busy, deadlines get missed. Check your return deadline and, if you think you’re going to need extra time, request an extension. If you realize that you missed the deadline, contact a tax defense professional. They will give you the best advice and help you through the hurdles.
Withholding Taxes Didn’t Get Deposited
Deposited to the US Treasury should be any withholdings that you keep from your employees’ paychecks – i.e., FCIA taxes, income taxes. You could be subject to a penalty if you fail to do so. If you’re not sure what to withhold, contact the IRS. And always make sure that you are making whatever payroll deposits are required.
Estimated Tax Payments Didn’t Get Paid
If you underpay your taxes, and, throughout the year, miss estimated tax payments, you could receive a 4% penalty. Estimated tax payments are due on January 15, April 15, June 15, and September 15. If, in your taxes for the year, you think you might owe $1000 or more, this is usually when estimated tax payments are utilized.
Mistakes happen. We at Tax Defense Partners know that. And we want to help you through whatever situation has presented itself as a result of a mistake you may have made on your small business taxes. Contact us today to see how we can be of assistance. Don’t worry, you’ve got someone on your side.