Biggest Tax Mistakes Made by Small Businesses

Gina Deveney
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Almost no one enjoys tax season, but it's especially stressful for small-business owners. Small businesses don't have the same resources as large corporations, making it more likely the owners will make serious tax mistakes. In many cases, these mistakes occur due to a lack of knowledge or planning, not an intent to defraud the government. If you work with small-business owners, make sure they understand the consequences of these common tax mistakes.

Mixing business and personal funds is one of the biggest tax mistakes made by business owners. The IRS doesn't require business owners to maintain separate bank accounts for their businesses, but failing to keep funds separate makes it difficult to determine if an expense should be included on a business tax return. If a business owner tries to use a personal expense as a business deduction, the risk of being audited increases significantly.

Waiting until the last minute to start collecting receipts is another tax mistake often made by small-business owners. If your clients don't gather the information you need as soon as tax season starts, you'll end up scrambling to finish their returns on time. You can help clients avoid this mistake by sending our reminder letters at the end of January. Tell clients they should start gathering their tax information as soon as possible so you don't have to file their returns at the last minute. Present a list of everything you need to provide tax preparation services without any hassles.

One of the most costly tax mistakes a small-business owner can make is not paying tax to the right agencies. Most people know they have to pay federal taxes to the IRS and state taxes to their state revenue agency, but small-business owners also have to deal with sales tax, payroll tax, self-employment tax and property tax. If your clients do business overseas, they might even have to pay excise taxes. Help new clients avoid major headaches by providing tax guidance when they start their businesses.

Some small-business owners don't realize the importance of tracking inventory and company assets. Tracking these items has several benefits, one of which is the ability to claim tax deductions for the depreciation on business equipment. Business owners also have to pay taxes on their assets, making it especially important to keep track of company property. If a new client asks you for tax advice, be sure to explain the importance of doing inventory at the close of each fiscal year. If your clients do a good job keeping track of their inventory and assets, they might be able to reduce their tax liability.

Serious tax mistakes can cost business owners thousands of dollars in penalties and interest. Help your clients avoid these mistakes by answering questions promptly and providing tax guidance throughout the year.

Photo courtesy of Stuart Miles at



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