Filing tax returns can be a stressful exercise especially for small business owners. You often want to prepare your financial statements and reports in-house, but then this tends to set you up for small but costly mistakes. Here are five of the mistakes that taxpayers tend to make time and again.
Not keeping accurate records
Tax season is all about going back to your financial records and preparing reports for the taxman based on those records. However, if you don’t maintain accurate entries in your books of account, then you might not be able to substantiate your expenses thereby losing out on important, legitimate tax deductions and well-deserved tax breaks.
To avoid this scenario, be sure to keep all your receipts for payroll, expenses, sales and any other items associated with your business transactions.
Inaccurate reporting of income
The government requires that every income you get is captured in your tax records. The taxman normally has most of your income records on file, and any mismatch during filing of your tax returns can trigger a notice that could lead to an audit.
Fortunately, you can easily avoid this mistake by simply keeping track of your income, both from personal sources and businesses throughout the year. Then, at the time of filing your returns, check to ensure that your entries match your tax documents.
Mixing personal with business-related expenses
Your business is a separate entity from you and should always be treated as such when dealing with taxes. Mixing your personal and business expenses could make you personally liable for the expenses accrued by the business. The only way to shield yourself from such liability is to approach business expenses separately from your own.
Notice that unlike business expenses, your expenses are not deductible even when you pay for them with your business account. So, you have nothing to gain and everything to lose when you don’t set up a separate checking account and debit and credit cards for your business.
Claiming excessive or unsupported deductions
The tax body keeps an eye out for deductions in a bid to prevent taxpayers from abusing the privilege. Any unsubstantiated deductions can raise the red flag and send the revenue service scavenging for mistakes via an audit.
So, it helps to keep every record of your deductible expenses meticulously, especially in cases where they involve huge or unusual figures. In case you’re in doubt, it is a good idea to check with a professional; for instance, you could call Gudorf Tax Group or any other reputable tax preparation company for assistance.
Making erroneous data entries
This is a common one, especially among those who file their returns late. It is quite common for taxpayers to read from the wrong line of a question sheet when entering information into the tax preparation software, or transpose digits – leading to inaccurate entries.
Unfortunately, the tax body won’t consider the source of the computational mistakes when reviewing your tax reports, so make sure you always double check your return entries before submitting.
A tax filing mistake may not always lead to an audit, but it is best to avoid any form of a red flag as much as possible. You don’t want to find yourself paying for mistakes that you could have easily avoided with a bit of help or proper planning.