If you run a small business, one thing you’ll want to get right is your taxes. You don’t want to avoid paying any taxes you should be paying; but you don’t want to pay more than you need to either, which can hurt your profitability. You can start by avoiding these five classic small business tax mistakes.
1. Failing to Keep Records
This is one of the small business tax mistakes that so many businesses make. If you want to do your taxes properly, you need to keep records. Yes, receipts are annoying, and gathering them and keeping hold of them is not exactly a fun job.
But you will miss out on claiming expenses if you don’t. And the amounts can really add up. Make sure you collect all your receipts, including VAT receipts. Have a system in place to make it easier, and consider using an app like Expensify to make this easier. So when it comes to tax return time, you’ll be better prepared.
2. Having the Wrong Business Structure
This is a simple but potentially costly mistake. You may start off as a sole trader or a limited company, and at the time this may be the right decision for you. But circumstances change. Make sure you review your structure occasionally because you may find you could be saving money by changing it.
3. Hiring Employees as Contractors
This is quite common as well. You might hire contractors to work for you and save money on holidays, sick pay and the rest. But are they really contractors? There are strict rules governing this area. And, once again, the rules can change. Know the differences and stick to them to make sure you are not hiring contractors who should actually be employees.
4. Forgetting to Put Money Aside to Pay Your Taxes
Another classic but potentially serious mistake is to fail to put enough money aside for taxes. When you’re running a small business, things can get very busy, so much so that you just focus on the here and now. When it gets to tax time, you may find that you have not saved up enough.
This can leave you in a serious jam. Don’t risk receiving a huge tax bill that you cannot pay. Plan carefully, look ahead and save money in a separate account for your taxes so you’re ready when the time comes to pay.
5. Filing Your Tax Return at the Last Minute
Don’t wait until the last minute to file your tax return. You have more chance of making mistakes or missing the deadline. Instead, plan things in advance and get it done as soon as possible. Get it out of the way, and you can get back to running your business.
Avoid These Small Business Tax Mistakes
Finally, one of the small business tax mistakes that many businesses make is trying to do everything themselves. You might be able to do your taxes yourself, but there’s a good chance that you are spending a lot of time on them and that you are missing out on savings. There’s also the risk that you could make potentially costly mistakes.
So consider hiring an accountant instead, and you won’t have to worry about making these common tax mistakes again.