Messing up your tax return can lead to all sorts of issues including late submission, fines, and even an audit. Find out how to avoid some of the most common tax return mistakes, below.
If you file your tax return with the IRS late, you can incur a fine, and this will compound the longer that it remains incomplete. Although, a late return is always better than not filing it at all, as this is where things can start to get serious, including running the risk of jail time.
Unfortunately, many small businesses get themselves in a mess by putting off filing their taxes until they know they can cover the whole bill. The funny thing is this isn’t necessary because the IRS will allow you to pay by installment, so it’s always better to file and ask for an installment plan than not file at all.
Claiming too much in expenses
Another mistake that small businesses can make when filing their taxes is claiming too much in expenses. Indeed, while it is possible to claim a significant amount of tax relief for certain business costs like travel, office equipment, and software, the IRS will compare what you are spending to other similar businesses to check to see if your claim is accurate.
In particular expense claims for travel, cars, and home offices are the most checked by the IRS so you mustn’t only file these accurately, but you have all the supporting documentation such as recipes that you need as well.
Poor organization & recordkeeping
Poor organization and record-keeping can also create serious problems for small businesses when it comes to filing their taxes. This is because when completing your tax return you will need to have all the relevant information to hand, including your tax codes, records of your accounts, and your FEIN number.
Your FEIN number is the code assigned to your business so the IRS can identify you in your tax return. If you haven’t already got a FEIN number then you can use a FEIN filing service to ensure the application process goes quickly and easily. Indeed all you will have to do is select either the type of FEIN you need or the location in which you are registering your business and they will do the rest.
When it comes to having your accounts to hand, they need to be accurate and up to date as well. The best way to manage this is to reconcile them throughout the year regularly, then you will be able to catch and rectify any glaring issues, well before they have an impact on your tax submission.
Mix business finances with personal
Since we have to file for both our business and personal finances here in the US, things can get confusing quickly. However, depending on the type of business you run, mixing personal and business finances can get you into all sorts of trouble.
For example, if your business is run as a corporation it means that your personal finances are separate and protected. This also means that there needs to be a very clear separation between your personal and business finances when filing your tax return.