Making mistakes when preparing tax returns is common for those who own a small business. A lot of such mistakes happen due to the owner’s failure to consider their taxes long before tax season. But keeping up with taxes through business tax preparation services in Westchester should be a year-round process. This process requires careful planning and preparation. Tax mistakes can be costly, so business owners will want to avoid them as much as possible. Tax preparation mistakes include the following:
Failing to File and Pay Taxes Promptly
Taxes should be filed and paid until April 15 every year, unless this falls on a weekend. Thus, as a business owner, you should plan to have your taxes ready to be filed and paid on or before this deadline. Failing to do so can result in serious penalties and fines. If you cannot file on time, file for an extension. But do not use this extension as an excuse to procrastinate.
Mixing Personal and Business Finances
When your personal and business finances are mixed, you create a mess you cannot easily clean up later. Separating these finances allows for easier tracking and differentiating of business expenses, which lets you claim tax benefits. If your company gets sued, your personal assets can be commingled with your business. As a result, you could lose personal assets in legal proceedings.
To separate personal and business finances, ensure you have separate bank and credit card accounts for each. Also, separate receipts and pay yourself a salary, so you do not withdraw from the business account when necessary. A tax expert can help you give you guidance on this matter.
Failing to Apply Appropriate Deductions
Business deductions can lower your tax bill and help you avoid overpaying the IRS. Business deductions you may be eligible for include office furniture, advertising, office supplies, and startup costs. By learning what can be deducted, you can cut back on the taxes owed.
Failing to Make Estimated Tax Payments
In general, business owners must make tax payments throughout the tax year. Sole proprietorships, partnerships, S corporations, and self-employed individuals must make such payments if they believe they owe more than $1, 000 during the filing of their returns. Those who file as corporations and expect to pay at least $500 in taxes must make estimated tax payments.
Failing to Do Tax Planning
A tax expert can help you with tax planning, so you can avoid mistakes when preparing taxes. They can help you avoid a huge tax bill you never expect.
Tax planning is an important aspect of financial planning. Proper planning lets you understand the tax benefits you are eligible for. It lets you take advantage of the following:
- Tax deductions. These let you cut down your taxable income. Often, they are expenses you incur throughout the year.
- Rebates. These are funds that exist following a retroactive tax reduction. Sometimes, rebates are offered by Congress to stimulate the economy when financial recessions arise. Also, they are utilized to incentivize eco-friendly practices.
- Tax credits. These can be deducted from the tax amount you owe.
Moreover, if you plan your taxes, you can spend more time growing your business. Rather than scrambling to collect important information, you will have all the pieces of information you need. Thus, you can file your tax returns quickly and promptly and avoid unnecessary fees.
In addition, tax planning can help you make smart decisions. While taxes should be paid, planning helps you understand the changes to make and their return on investment, so you can leverage deductions and credits. With this, you will have time to you can invest back into your operations.
