5 Common Tax Mistakes Small Businesses Make (And How to Avoid Them)

Tax season can be a stressful time for any business owner, but for small businesses, a single misstep can have significant financial consequences. From misclassifying employees to overlooking valuable deductions, the pitfalls are numerous. In this post, we'll explore the five most common tax mistakes that small businesses make and provide actionable advice on how to avoid them. Learn how leveraging an AI financial advisor can help you stay compliant and maximize your savings.

1. Co-mingling Personal and Business Expenses

One of the most frequent errors is failing to maintain separate bank accounts for personal and business finances. This not only creates a bookkeeping nightmare but can also lead to missed deductions and raise red flags with the IRS. We'll show you how to establish clear financial separation and why it's crucial for your business's health.

2. Misclassifying Employees

The distinction between an employee and an independent contractor is a critical one for tax purposes. Misclassifying an employee as a contractor can result in significant penalties, including back taxes and fines. Learn the key criteria for classification and how to ensure you're on the right side of the law.

3. Poor Record-Keeping

In the event of an audit, the burden of proof is on you. Failing to keep meticulous records of your income and expenses can lead to disallowed deductions and a hefty tax bill. We'll cover best practices for record-keeping and how digital tools can simplify the process.

4. Not Understanding Estimated Taxes

If you're self-employed or your business is a pass-through entity, you're likely required to pay estimated taxes throughout the year. Failing to do so can result in underpayment penalties. We'll break down how estimated taxes work and how to calculate your quarterly payments.

5. Overlooking Deductions

From home office expenses to vehicle mileage, there are numerous deductions available to small businesses. Many business owners miss out on these opportunities simply because they're unaware of them. Discover how an AI-powered advisor can help you identify every deduction you're entitled to.