Tax season rolls around every year, but no matter what, it always seems to feel like a scramble. For business owners, it’s easy to make mistakes, especially when you’re juggling a million other responsibilities. But here’s the thing: tax mistakes cost real money in the form of overpayments, missed deductions, or IRS penalties.
At Current Accounting, we see the same avoidable tax mistakes pop up repeatedly. The good news is that once you know what to watch for, you can fix them before they cost you. In this blog, we’ll review some of the most common business tax filing mistakes and how to avoid them.
1. Leaving Money on the Table with Missed Deductions
So many small business owners end up paying more taxes than they have to because they don’t take advantage of deductions. If you’re spending money to run your business, there’s a good chance it can be deducted.
Some of the most overlooked deductions include:
- Home office expenses
- Business meals & travel
- Software subscriptions
- Vehicle expenses
- Education & training
2. Messing Up Employee vs. Contractor Classification
Misclassifying your workers is a mistake that can get you in serious trouble with the IRS. If you hire people, you must know the difference between employees (W-2) and independent contractors (1099).
Here’s a quick breakdown:
- Employees: You control their schedule and provide equipment, and they work under your direction = W-2 (and you need to pay payroll taxes).
- Contractors: They set their own hours, use their own tools, and work for multiple clients = 1099 (and they handle their own taxes).
If you mess this up, you could owe back taxes, penalties, and fines. If you’re unsure, ask an accountant before it becomes a problem.
3. Forgetting About Quarterly Tax Payments
If you’re self-employed or own a small business, the IRS expects you to pay taxes throughout the year, not just in April. That’s why estimated quarterly tax payments exist.
If you miss a payment, the IRS charges interest and penalties. If you’re a:
- Sole proprietor
- Freelancer or independent contractor
- Business owner who doesn’t withhold taxes from paychecks
4. Filing Late or Missing Deadlines
The IRS isn’t exactly forgiving when it comes to missed deadlines. Filing late can result in significant penalties even if you don’t owe taxes.
Here’s what happens if you miss tax deadlines:
- Failure-to-File Penalty: 5% per month on unpaid taxes (up to 25%)
- Failure-to-Pay Penalty: 0.5% per month on unpaid taxes
- Interest Charges: Daily compounding interest on whatever you owe
If you’re running behind, file for an extension, but remember, an extension only gives you more time to file, not more time to pay.
5. Not Keeping Good Records
If you wait until tax time to sort through a box of receipts, you’re making life way harder than it needs to be. Not keeping solid records is a surefire way to miss deductions and face potential IRS trouble.
Here’s what you should be tracking all year:
- Business income and expenses
- Receipts for deductible purchases
- Payroll records
- Bank statements
- Vehicle mileage for business trips
Accounting software or a simple expense tracker saves you time and stress during tax season.
6. Choosing the Wrong Business Structure
Your business entity type impacts how much tax you pay, and sticking with the wrong one can cost you thousands yearly.
Here’s a quick overview:
- Sole Proprietorship & LLCs: These are easy to set up but can mean higher self-employment taxes.
- S-Corp: You can reduce taxes by paying a salary and taking distributions.
- C-Corp: Best for larger businesses but comes with double taxation (corporate + personal tax).
If your business has grown or changed, it might be time to rethink your structure. A quick chat with a Charleston accounting and tax expert can tell you if you’re set up in the most tax-efficient way.
7. Forgetting About State & Local Taxes
Federal taxes aren’t the only thing on your plate—business owners also need to file state and local taxes. This might include:
- State income tax (depending on your location)
- Sales tax filings (if you sell products)
- Local business taxes & licensing fees
If your business operates in multiple states, you might also have nexus tax obligations, meaning you must collect and remit sales tax in each state where you do business. Don’t ignore these, or you could face fines.
8. Trying to DIY Everything
We get it; hiring an accountant feels like another expense, and many business owners try to handle taxes themselves. However, tax laws are complicated and constantly changing, and even a tiny mistake can cost you way more than an accountant’s fee in missed deductions or IRS penalties.
Why working with an accountant actually saves you money:
- They find deductions you might have missed.
- They help you stay compliant (no audit nightmares).
- They set up long-term tax strategies to keep more money in your business.
You don’t have to do it alone—especially when Current Accounting can make tax season way easier.
Make Tax Season Less Painful with Current Accounting
If taxes stress you out, that’s a sign it’s time to get help from someone who does this daily. At Current Accounting, we ensure our clients file correctly, maximize deductions, and avoid costly mistakes. If you’re tired of wondering if you’re doing it right (or want to stop overpaying the IRS), let’s talk. Schedule a consultation today and make this the year you finally get ahead of tax season.