Contributed by Elizabeth Shauger, CPA Director, Mauldin & Jenkins
Having a small business comes with many challenges. Attracting top employees, inflation, growing the business, minimizing costs, managing finances and filing taxes are just a few of the hurdles business owners encounter, along the path to success. No matter what type of business you run, filing taxes is probably one of the more daunting tasks you face during the year.
Small business owners often wear many different hats. When tax season comes around, you might think of preparing your tax return as just another item to quickly cross off the to-do list. But that approach invites mistakes that could lead to interest, penalties and fees — as well as leaving money on the table, in the form of tax credits and deductions that could be claimed.
Staying on top of crucial tax tasks throughout the year can help small business owners take full advantage of available tax incentives and minimize the risk of tax compliance violations, including late or incorrectly completed tax returns. For the best results at tax time, make these best practices a core part of your business practices all year long.
Separating business and personal
One of the most common missteps is not properly separating personal and business finances. It can be tempting to use one credit card for all expenses, especially if the business is a sole proprietorship. However, co-mingling business and personal charges can complicate accounting and make it difficult to identify deductible expenses. Which were legitimate business expenses, and which were personal? Trying to sort it out after the fact often causes errors when claiming deductions and opens the door to problems if you or your business ever faces an audit.
Making timely estimated tax payments
The U.S. tax system operates on a pay-as-you-go basis. As a self-employed business owner, you don’t have taxes withheld from a paycheck like traditional employees who receive a W-2 from an employer. Generally, if you expect to have a tax liability of at least $1,000, you should proactively estimate and pay federal and state taxes on a quarterly basis. If you ignore, or forget, to make these payments on time, you could face significant interest as well as penalties. If you’re earning income that doesn’t have taxes withheld, consider quarterly estimated tax payments as an absolute necessity and an urgent priority on your financial to-do list.
Keeping accurate records
Inadequate record-keeping can lead to missed deductions and increased scrutiny during an audit. Many small business owners lose out on deductions that could reduce tax liability, simply because they don’t have records to support their claim. Without clear records, you may not even recognize that you could qualify for these tax incentives. Sloppy record-keeping is also a major risk factor for improper reporting on your tax returns. No small business owner can afford to make that kind of mistake, because failing to report all income or making errors in reporting can lead to audits and fines. In addition, keeping current and careful financial records allows you to see accurate numbers to gauge your financial progress, at all times. The sooner you have an idea of your business’s general outlook for the tax year, the better prepared you will be to prevent cash flow disruptions and avoid surprises.
Hiring professional help
Tax compliance is mandatory, but it can represent a real drain on a small business’s limited resources. Working with a tax specialist can save a lot of money, as well as dramatically reduce risk and time demands on you, as the owner. With such a complex tax code and so many compliance challenges, delegating tax tasks is a key step for small business owners aiming to focus on growth and reduce stress. A qualified tax professional can often handle your small business tax filing more efficiently, accurately and cost-effectively than attempting it on your own, while also leaving you free to provide effective leadership for your business.
Navigating taxes poses a challenge for any small business owner. Without strategic attention and thoughtful planning filing errors, missed opportunities and lost income are inevitable. Staying proactive and well-informed can empower you to avoid costly mistakes. Partnering with a tax professional can help you optimize your tax position and keep your focus on growing your business. And with many provisions under the Tax Cuts and Jobs Act set to expire after December 31, 2025, it is crucial for business owners to act now. Don’t wait for tax season — start planning today so you can secure your business’s financial future.
Elizabeth Shauger, CPA is a Director with Mauldin & Jenkins in the Bradenton, Florida office. Elizabeth has over 15 years of tax experience in public accounting servicing a wide range of industries. She specializes in corporate, partnership and high net worth individuals, as well as tax planning. Elizabeth received her Bachelor of Business Administration in Accountancy, from Florida International University, in 2005, and Master in Taxation, from Nova Southeastern University, in 2007. She is a member of the American Institute of Certified Public Accountants (AICPA) and Florida Institute of Certified Public Accountants (FICPA). Elizabeth and her husband reside in Tampa, Florida with their two sons, William and Matthew.