Small business owners often find it difficult to accurately prepare their business taxes. Often, small-business owners, especially self-employed or freelance business owners file their business tax as part of their personal tax return. This means it can be easy to file but may mean they are more prone to make mistakes which in turn can cost them more money in penalties, fees, and interest.
The 5 Biggest Business Tax Mistakes You Should Know
Business Tax Filing Mistake #1
Missing Tax Filing Deadlines
Tax deadlines fluctuate based on the type of business entity you have, the state where your business is located, and the deadlines set by both the federal IRS and state revenue offices. Deadlines include federal returns, semi-weekly or monthly deposited payroll taxes, estimated tax payments, state or local sales tax filings, as well as personal income tax returns. It is important to know the deadlines for each type of filing so that you don’t mistakenly miss a deadline. Missing deadlines can cost a business owner late fees and other penalties as well as possible interest on missed payments.
Important tax calendar dates for 2023″
- January 31, 2023: Deadline for employees and independent contractors to receive their W-2 or 1099 tax forms.
- March 15, 2023: Deadline to file business tax returns for partnerships, S corporations, or LLCs that and partnerships. (Note: there are special exceptions to this deadline for fiscal-year taxpayers if your fiscal tax year doesn’t start on January 1. You can check the IRS.gov website for your fiscal year due date.
- Also, it is the deadline to file Form 2553 to switch your business filing type to an S corporation for the tax year 2023. Missing this deadline means your business will not be treated as an S corp until the calendar year 2024.
- April 18, 2023: Deadline for personal income tax return filing. (Typically this date is April 15th, but if the 15th falls on a weekend it is advanced to the following week, and also because Monday is a regional holiday for Washington DC it is moved to Tuesday the 18th.)
- Deadline for C corporations, sole proprietorships (Schedule C), single-member LLCs or LLCs taxed as corporations, and individuals to file their tax returns
- Last day for you to make 2022 contributions to traditional and Roth IRAs
- Last day to request a filing extension.
- Oct. 16, 2023: If you received a filing extension on your 2022 income tax return, your extended individual return is due on this date.
2023 quarterly estimated tax payment deadlines
If you are self-employed or receive any form of income that requires you to pay estimated taxes, here are the estimated tax due dates for 2022:
- April 15, 2023 – Deadline for 2022 Q1 estimated tax payments
- June 15, 2023 – Deadline for 2022 Q2 estimated tax payments
- Sept. 15, 2023 – Deadline for 2022 Q3 estimated tax payments
- Jan. 15, 2024 – Deadline for 2022 Q4 estimated tax payments
Business Tax Filing Mistake #2
Missing Tax Filing Documents
Another mistake that businesses often make is not having the documents needed to file their taxes properly. It’s important to keep good financial records. This includes payroll documents such as employees w-4’s, 1099s for payments to independent contractors, income statements, depreciation schedules, bank and credit card statements, and receipts for purchases. You’ll need this data to finish your business tax returns.
Business Tax Filing Mistake #3
Not Filing the Proper Tax Forms
Failing to file the proper tax forms may lead to penalties and fees if you have to re-file because it might mean that you miss a deadline. Proper tax forms should be completed to report any business income or loss, allowable deductions, and estimated taxes. These forms will be filed with your personal 1040 or in place of it for most small business owners. For business owners who operate with a corporation status, separate filings may be required.
Common tax forms include:
- Schedule C: Report profit and loss (sole proprietor).
- Form 1120 or 1120S: Report income, gains, losses, deductions, and credits (corporations).
- Schedule K-1: Report business expenses, income, and losses (partnerships). Typically filed along with Form 1065.
Other tax documents you might need to file include depreciation, home-based businesses, self-employment taxes, and estimated taxes.
Business Tax Filing Mistake #4
Failing to report all taxable income
If you work as a sole proprietor or independent contractor, or just consider yourself a freelancer earning occasional income, every dollar you earn is taxable. That means that you are required to report the money you receive for work you’ve done. Failing to fully report your income can lead to audits, penalties, and interest added to the amount you may owe.
This year, the IRS is requiring online banks such as PayPal and Venmo to report income on all users that exceed $600 for both sales and services. That means you should receive a 1099-k form from those and other like-entities to help report the income you’ve earned.
Business Tax Filing Mistake #5
Failing to Report Income and Expenses in Multiple States
If you work or provide services in multiple states then you may be required to report income in each state that you work in. Failure to do so could lead to state audits by the states you aren’t reporting in. Additionally, if you hire service contractors from an out-of-state business you may be required to report payments you’ve made to those contractors.
What to do if You Make a Mistake on Business Tax Filings?
Mistakes happen. They are just part of life. But, by keeping good financial records, meeting deadlines, and getting help when you need to you can eliminate or reduce your chances of making mistakes on your tax filings. However, if a mistake is made don’t panic. You can amend your tax return and refile it.
Depending on your type of business structure, amending your tax return means filling out IRS Form 1040-X and resubmitting your return. If the mistake is made and caught before the tax filing deadline you can avoid late fees and penalties. But, if mistakes are found after taxes have been filed and it’s past the filing deadline you will likely have to pay some interest and penalties.
Should You Hire a Bookkeeper or Accountant to File Business Taxes?
If you are a small business owner, you might be wondering if it is worth it to hire a bookkeeper or accountant or if you should do your own taxes. If you have been thinking about hiring help to manage your books, but haven’t yet made a decision, this article will break down some of the benefits and drawbacks of doing so.
Hiring assistance with managing your business bookkeeping can be beneficial but isn’t necessary if you feel you have the time to manage all of the t
At Cowdery Tax and Business Solutions we offer a variety of business bookkeeping services as well as tax prep services. Contact us today to determine how we can best assist you with your financial records.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.