With approximately a month to go, it's time to get in gear if you haven't yet filed taxes for your small business. Before you do so, however, take a moment to look over a list of common mistakes entrepreneurs often make during the process.
As Entrepreneur magazine notes, many small business owners elect to file their own taxes, relying on a financial calculator and their own knowledge. This state of affairs is not exactly shocking given the do-it-yourself mentality shared by many who captain startups. However – and also unsurprisingly – choosing to go it alone can result in avoidable mistakes. If keeping expenditures down is your chief motivator, consider how costly an IRS audit could turn out to be further down the road.
Another common stumbling block is record keeping, or lack thereof. According to the news source, the IRS has named keeping sloppy records as the most common issue among owners of small companies. When it comes to using a personal credit card or cash to make business purchases or pay other expenses, you may have faith that your memory of the transactions will sustain you. However, you know better than anyone how many things are on your plate on a daily basis. Do you really want to risk inaccuracy and all the subsequent hassle that comes with it? It's better to just keep up with records throughout the year – and this also gives you an opportunity to cross-reference with your company's financial plan to see how you're doing.
That said, keeping all your receipts isn't sufficient, according to CBS News. Rather, every small business owner should be maintaining an accurate, up-to-date tax organizer – and no, that's not the same thing as an expense log.
"A tax organizer has all the questions that the IRS requires you to answer about travel, entertainment and other expenses," Sandy Botkin, a CPA, attorney, former trainer of IRS attorneys and the CEO of The Tax Reduction Institute told the news source. "It will bulletproof your records and eliminate procrastination, and if you're audited, it shifts the burden of proof to the IRS."
A third common downfall is misclassifying workers.
"The best way to determine the correct worker classification is to review the amount of control you have over their work," Entrepreneur magazine explains. "If you are controlling how and where the work is done and providing the tools to do it, then chances are good that are the worker is an employee."
This is because independent contractors typically have control over how, when and where work is completed, CBS adds. They make their own hours and don't have to answer to you in the same way employees do. They're also a lot cheaper than employees, so it can be tempting to designate workers as independent even if they don't entirely meet the criteria. However, if the IRS flags improper classification, you may be subject to penalties.
As Botkin puts it, "If you're going to designate a worker as independent you have to treat him as independent."
It's not uncommon for small business owners to reach mid-March before realizing they've bitten off more than they can chew when it comes to filing taxes on their own. But it doesn't have to be that way. It's not too late to drop by your local My Bank branch for advice from a financial services expert. You can also call us at 1-888-mybank4, visit mybank4.com or even tweet us at @MyBank.