Filing taxes is something that individuals and small business owners may not look forward to. However, filing taxes is inescapable and certainly essential to achieving a successful and penalty-free business operation.
Why it Pays to File Taxes Early
Some small business owners may be inclined to put off filing taxes due to busy schedules, worries about tax rules, or concerns about cash flow. But waiting until the last minute only adds stress and other issues to a process that can be smoother and less stressful when approached earlier. Here are the reasons to file early:
- Early filing reduces the stress over deadlines. It is helpful to set up a process in advance so that there is plenty of time to complete all the required steps without the pressure of a rush or errors incurred in a rush.
- Early filing often results in a larger refund if a refund is qualified-for.
- For a business that has a tax bill, time is available for the business to develop a plan to pay the taxes without last-minute pressure.
- Filing taxes early means that a business will likely have better and more access to tax filing professionals before the “crunch time” brings in more tax filers. Tax planning can include better-estimating capital gains, leveraging possible losses, gaining the benefit of charitable deductions, and timing deductions and expenses into the most beneficial tax year.
- Early filing avoids the problems and cost of filing amended returns.
- Early filing avoids late penalties.
Penalties for Late Filing
Filing taxes late results in significant late fees. For example, S-class corporations and LLC’s a business will pay a $195 late fee for every month that taxes are not filed, starting at the beginning of the calendar month. There are also late payment fees. Additionally, because banks and other financial entities require tax returns for certain transactions, those transactions can be delayed or blocked until the taxes are properly filed.
Tax Filing Mistakes for Small Businesses to Avoid
Filing taxes correctly will avoid these problematic mistakes that can cause IRS reviews and penalties:
- Misreporting income. It is important to report all income, to report income accurately, and to record it in the correct place on the tax forms.
- Attempting to deduct 100% of certain expenses including meal expenses.
- Mixing personal and business finances. This is a huge mistake.
- Not keeping accurate business travel and mileage expense records.
- Not doing thorough tax planning. Working with a professional who will provide significant tax planning help is a big asset.
- Underpaying estimated quarterly taxes.
- Not claiming the qualified business income deduction.
- Ignoring or not properly accounting for business startup expenses.
- Choosing the wrong retirement plan for business owners or not contributing enough to retirement plans.
- Overlooking carryover deductions.
- Not keeping accurate charitable deduction records.
- Failing to complete and attach required forms and schedules.
- Not disclosing all facts and providing all documents to your CPA.
- Failing to keep good cost-based records.
- Taking business deductions purely for their tax impact.
- Ignoring good bookkeeping practices throughout the year.
- Putting off tax preparation until late and filing taxes late.
Get Expert Accounting and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting, financial assistance, and tax preparation that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.