Common Tax Mistakes That Can Cost You Money
Even though we complete tax returns every year, we still make errors when doing so. Some of them are inconsequential, but a few have legitimate implications that can cost you money. Let’s take a look at common tax mistakes for small businesses so you can avoid making them.
For many of us, doing our taxes is stressful. And when we’re stressed, we make errors. Some of them are inconsequential, but a few have legitimate implications. Let’s take a look at common tax mistakes for small businesses so you can avoid making them.
Let’s start by dispelling the myth that filing an extension defers payment. Not so! According to the IRS, “To get the extension, you must estimate your tax liability...and should also pay any amount due.” Thus, the extension only gives you more time to prepare the return, not to pay your bill. Missing the deadline can result in a one-time penalty, accruing interest and monthly fines on the amount due for each month your return is tardy up to 25%.
Now let’s look at glitches we make on the returns themselves.
Among the most frequent of mistakes, you'll want to double-check these items -- maybe even read them out loud -- to make sure the right digits are in the right spots. Bonus tip: If you’re due a refund, the feds advocate using direct deposit to avoid mail delays. Since this involves bank routing numbers, there’s another set of numerals to get right. This information is available on your bank’s website, its mobile banking app, or by calling your local branch.
Forgetting attachments isn’t just a problem with your business emails. Many filers neglect to include supporting documents required by the IRS, like W2 or 1099 forms, schedules, and in some cases receipts. Failing to provide these items may delay your refund. Luckily, most tax prep software flags documents that are needed and don’t let you proceed without uploading them.
Math errors -- especially for tax credits or deductions -- are a perennial issue. Using a calculator or tax software helps, but these tools are only as accurate as the numbers you key in. Review and verify every digit and math function carefully.
Maybe it’s because we’re so relieved to get the hard part done, but a lot of us neglect to sign the return. And, yes, you have to put something on that line even if filing electronically. An unsigned tax return won’t get processed, so you slow down your refund and risk accruing interest and other penalties when you don’t sign.
Cautious tax pros suggest keeping hard copies and electronic copies for at least 6 years, but the IRS can audit you going back even further. Some tax software will store returns for you, but it’s still best practice to stash your documents on a platform that isn’t owned by someone else, too. Make sure you have a back-up file in the cloud or a remote location in case something happens to your office desktop computer or you forget to update your tax software subscription.
Tax preparation and filing don’t have to be taxing. Keep this information handy as you prepare your return this year so you can avoid these small business tax mistakes.
Disclaimer: Xometry and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Consult your own tax, legal and accounting professionals before engaging in any practice or transaction.