The Top 5 Mistakes Small Business Owners Make During Tax Season (From a CPA)

The Top 5 Mistakes Small Business Owners Make During Tax Season (From a CPA)

The Top 5 Mistakes Small Business Owners Make During Tax Season (From a CPA)

As tax season approaches, small business owners nationwide are gearing up for what is often considered a daunting time of year. With the complexities of tax laws and the pressure to maximize deductions while remaining compliant, it’s no surprise that mistakes can happen. However, being aware of common pitfalls can help you navigate this period more confidently and efficiently. Here are the top five mistakes that small business owners make during tax season and how to avoid them:

1. Not Keeping Accurate Records

One of the most common mistakes small business owners make is failing to keep accurate and comprehensive records of their financial transactions throughout the year. Inaccurate record-keeping can lead to missed deductions or problems with the IRS, such as expensive penalties, interest, property liens, and even criminal charges.

How to Avoid It: Implement a reliable accounting system and make it a habit to update it regularly. I recommend hiring a professional accountant or bookkeeper with great reviews and credibility. Your accountant should use accounting software tailored for small businesses, such as QuickBooks or Xero, which can help optimize tracking your business finances. Your accountant should ensure that each bank statement, credit card statement, loan statement, and all significant accounts are reconciled for the year before finalizing your financial statements.

2. Missing Deadlines

The IRS announces the tax deadlines every year. Yet, countless small business owners scramble at the last minute or miss deadlines altogether. Missed deadlines can result in hefty fines and penalties, adding unnecessary costs to your business.

How to Avoid It: Mark your calendar well with all relevant tax deadlines (not just April 15th). If your company is established as an S Corporation or partnership (calendar year), the tax return is due March 15th . Setting reminders a few weeks before each deadline can help ensure you have enough time to prepare and file your tax return. The sooner you get your 1099s, statements, and updated relevant information to your CPA or accountant, the better!

3. Overlooking Deductions and Credits

Many small business owners are unaware of the deductions and credits available to them. Some commonly missed deductions include home office expenses and travel costs to more specific deductions related to your industry. Overlooking these can mean paying more in taxes than necessary.

How to Avoid It: Do your research or consult with a CPA to understand the deductions and credits applicable to your business. Keeping detailed records throughout the year will also make it easier to claim these benefits. If you set up a unique email address just for receipts, you can easily choose the email option for your receipts and send all your receipts to “” You can also snap a picture of your receipts and set a weekly time on your calendar to upload them to your accounting software or email them to your receipts email address.

4. Mixing Personal and Business Finances

Combining personal and business finances complicates your accounting and can lead to issues when deducting business expenses. The IRS scrutinizes mixed expenses closely, and without clear separation, you risk disallowance of legitimate business deductions.

How to Avoid It: Open a separate bank account for your business and use distinct credit cards for business expenses. This separation simplifies record-keeping and substantiates your deductions. Hold yourself accountable by maintaining strict rules about not using your personal funds for business transactions!

5. Trying to Do It All Alone

Many small business owners attempt to handle their taxes without professional help, often to save money. However, the complexity of tax law means it’s easy to make mistakes or overlook opportunities for savings.

How to Avoid It: Consider hiring a CPA, especially if your business structure is complex. Their expertise can save you a significant amount in taxes and free up your time to focus on running your business. Conclusion Tax season doesn’t have to be a source of stress. By being mindful of these common mistakes and taking proactive steps to avoid them, small business owners can navigate tax season more smoothly and with confidence. Remember, investing in good habits and professional advice is not an expense; it’s a way to safeguard and maximize your business’s financial health.

By Ebe Osaigbovo, CPA Smart with Money CPA

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