Many business owners feel that paying taxes and getting license renewals is a tough ask. Being on time, calculating every small aspect, analyzing the differences, etc. can be challenging and exhausting as an activity.
However, there is something more difficult and challenging than paying taxes itself. It involves making mistakes in the tax filing process and having to do the entire thing all over again with added fines and penalties.
In this article, we are going to look at the five most common tax filing mistakes, which business owners are guilty of. However, before we do, let us first look at why filing taxes in the right manner is so important for the success of any business.
The Importance of Taxes for any Business
If you are a business looking to operate in any state in any country in the world you will be required to pay taxes. This might differ depending on how tax-friendly the country is. However, there are multiple taxes, which all businesses need to pay.
This can include sales taxes, income taxes, corporate taxes, property taxes, patent and copyright taxes, and so on. Many big businesses set up internal legal and accounting teams to help them with all these filings throughout the year.
Smaller businesses, on the other hand, hire the services of experts to help them with sales tax filing. Filing taxes on time allows a business to avoid paying penalties, getting warnings of worse still, having their permits and licenses revoked by the authorities.
Tax filing mistakes might result in a business paying over and above the taxes in the form of fines or settlements. This is never a good thing to do as it not only undermines the credibility of the business but also casts a shadow over its financial propriety in the eyes of banks and other financial institutions.
List of 5 Common Tax Filing Mistakes made by Business Owners
Mis-Reporting Income in Taxes-
There are many common income reporting mistakes, which are done by business owners. They either report lower incomes or go on to report higher incomes. Another common mistake is not disclosing all the sources of income. A business owner might also be an investor or a poker player. In such cases, reporting all the sources of income correctly matter for taxation.
2. Having One Account for Business and Personal Finance-
Many business owners believe that they are one and the same with their business. This leads them to not maintain separate financial accounts and entities and merge the two. This is highly problematic from a taxation point of view and can get you penalized from multiple authorities all at the same time. This can lead to heavy fines, as well as cancellation of licenses.
3. Not Calculating Estimated Taxes-
Many business owners make the mistake of under-reporting or underpaying their estimated taxes. While many business think that estimated taxes only concern income tax. However, that is not the case. Estimated taxes also include Medicare taxes. If you are not paying your estimated taxes every quarter, it can lead you to incur huge tax penalties.
4. Ignoring State Nexus Tax Laws-
As a business, if you are operating in multiple states, you need to pay nexus taxes. This is especially true for ecommerce businesses that have consumers in different states. If you feel that you will not be able to handle the same on your own, you should work with experts for sales tax filing. This will enable you to keep the taxes in order and avoid getting into trouble.
5. Paying Taxes at the Last Minute or Delaying even more-
Many financial experts state that filing taxes at the right time is like a habit. Some people are good at it, while others are not. You might be very good at your business, yet you would have a habit of filing taxes right at the last minute or even delaying it beyond the last date. If you feel that you should not trust yourself in this regard, it is always better to hire professionals to do the job for you.
The Final Word
Whether you like it or not, you will have to pay business taxes to keep your organization up and running. The bigger your business gets, the more complications will it start attracting on the taxation front. By avoiding these five mistakes, you can ensure that you and your business will not be at the receiving end of penalties and fines.