Being a small business owner comes with numerous obligations. As such, tax preparation may fall by the wayside, which can lead to serious consequences. While the following mistakes impact many small businesses, learning about the tax process and working with an accountant can help you avoid them. 

What Are Some Common Business Tax Errors?

1. Being Overzealous With Deductions

Deductions keep your taxes low. However, you must follow the rules and guidelines to prevent problems with the IRS.

For example, some expenses can’t be fully deducted. This is true of business meals and entertainment costs, of which only 50% can be deducted from your taxable income. 

2. Reporting Income Incorrectly

Over-reporting your income means you’ll pay more in taxes than necessary. Under-reporting is even more problematic, as it could trigger an IRS audit and possible penalties. Many income mistakes stem from poor recording keeping, so make sure you’re updating financial records as changes occur, instead of going back at a later date to make updates. 

3. Combining Business & Personal Expenses

All expenses your business incurs should be kept separate from personal finances. Not only will this make tax preparation easier, but it will also spare you an IRS audit should suspicions arise. For instance, deducting fuel costs for a trip that mixed business and pleasure can get you in trouble if the IRS asks for documents or receipts backing up the deduction. 

4. Using the Wrong Employee Status

A full-time employee working with your organization is treated differently than an independent contractor when it comes to taxes. Accordingly, these workers must be classified correctly to ensure taxes are being remitted properly. Payroll taxes are complex under the best of circumstances, so errors with employee classifications will make them even more challenging. 

You can also work with a skilled accountant on tax preparation to ensure your business continues to thrive. Sharrard, McGee & Co., PA, has served clients in High Point, Greensboro, and Winston-Salem, NC, for more than four decades. They provide business advisory assistance, which can help get your commercial enterprise off the ground, as well as tax preparation, record keeping, and business succession planning. Call (336) 884-0410 in High Point or (336) 272-9777 in Greensboro to schedule a free consultation, or visit them online to learn more about their tax and accounting services.