Being a small business owner or entrepreneur can be a challenging endeavor. There are so many facets to successfully running a business that the first few years are bound to lead to mistakes. While some mistakes may be easier than others to bounce back from, one area that should not be overlooked is your taxes.
One of the most common struggles for first-time business owners is keeping up with the financial side of business and filing taxes accordingly. While filing your business taxes can be a learning curve, making even minor mistakes could lead to significant trouble for your budding company. Some of the most common tax mistakes made by businesses and startups can be found below.
Mixing Business & Pleasure
It is very common for new business owners to mix business with pleasure. Seeing as how the first few years require a lot of time and money, many business owners mesh their personal and business finances altogether. While this might seem like an easier solution to filing income taxes, it can lead to serious trouble.
Even if you’re a sole proprietor is ideal from the very beginning to separate finances establishing one financial account for the business.
Failing to Pay Quarterly Taxes
Most business types are required to pay taxes on the quarterly basis (depending on how much money you make each quarter). Neglecting to report on the quarterly basis could result in higher fines and other legal actions. Even if you’re not required to pay on the quarterly basis, it may be a good method of practice. Trying to get all of your finances for the entire year can be overwhelming, to say the least.
Late tax filings are another big mistake that new business owners make. There are deadlines that must be followed and remembering them all can be a struggle. As a result, businesses end up receiving fines and penalty fees from both the IRS and local government.
Failing to Deposit Withheld Sales Taxes
In most cases, a company is required to deposit sales taxes routinely (monthly or semi-weekly). As taxes reach a dollar limit, they are required to be deposited within one business day. When business owners are not aware of tax limits and deposit dates, they run the risk of being late. This results in late deposit penalties and interest which can range from 2 to 15 percent. These laws are made at the state level, so be sure to check the laws where you do business.
Productivity Tip: Managing taxes and deposit dates can get challenging. Whether you like to do your finances yourself or you have the help of an accounting team, sometimes outsourcing is the best bet. Companies such as ADP.com offer an array of solutions for managing the financial side of your business and can help to minimize your chances of being fined or audited by the IRS.
Failing to Outsource or Get Help
In your first few years of business, finding ways to cut corners and save a few dollars just makes sense. However, there are some areas of business you just can’t afford to skimp on. One of those areas is finances. Having accurate financial accounts and reports is vital to the success of any business. If finances have gotten out of hand for you, it is best to reach out to someone for help before the matter gets worse.
Consulting with a team of accountants or business financial advisor can give you insight on how to improve your finances. However, for the busy business owner, outsourcing might be the best course of action to protect your company. Waiting until after your company’s reputation is ruined or you’re drowning in debt from government fines and penalties won’t help. Take the time to assess whether or not it is time to get help from reliable sources.
Final Thoughts on Filing Taxes as a Business Owner or Entrepreneur
Running a business is not an easy task, but it is worth it. The key to success is to keep your company’s best interest at heart when it comes to finances. Educate yourself on local and federal tax laws, set systems in place to accurately track and report your business finances, and periodically get the second opinion of an expert to ensure all of your ducks are in a row.
Today’s post is written by Kevin, an account director at for a boutique investment firm and has been working within finance, marketing, and public relations for over eight years.
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