Top 10 Tax Mistakes Midsize Businesses Make & How to Avoid Them
With tax season right around the corner, we’re busily preparing tax documents for our clients and partnering with their accountants to ensure that everything’s filed seamlessly. However, for those of you filing for yourself, we wanted to aggregate a list of the top ten mistakes we see midsize businesses make and how to avoid them.
Filing the wrong paperwork: Different business structures (LLCs, S corps, C-corps, etc.) require different tax forms, and using the wrong one can lead to delays, penalties, or even an audit. Ensuring you file the correct paperwork helps you stay compliant and maximize tax benefits.
Missing out on meaningful deductions: Many businesses leave money on the table by not claiming all eligible deductions—like home office expenses, software subscriptions, or employee benefits. A proactive approach to tax planning ensures you’re not overpaying and can reinvest those savings back into your business.
Not keeping detailed records: Inadequate record-keeping makes it harder to claim deductions, defend against audits, or even understand your business;’ financial health. Keeping well-organized receipts, invoices, and financial statements year-round saves time and stress when tax season arrives.
Mixing personal and business expenses: Using the same bank account or credit card for both personal and business expenses can create a bookkeeping nightmare. It not only complicates tax reporting but may also cause you to miss deductions or trigger IRS scrutiny. Keeping finances separate makes everything smoother.
Misclassifying your workers: Employee vs. independent contractor—getting this distinction wrong can lead to serious tax liabilities, back pay, and penalties. Misclassification is a red flag for the IRS, so it's crucial to follow the correct guidelines and ensure compliance.
Missing deadlines: Late filings or missed estimated tax payments can result in unnecessary penalties and interest. Marking key tax deadlines in advance (or working with a bookkeeping team to keep track of them) ensures you avoid costly mistakes.
Failing to pay estimated taxes throughout the year: Midsize businesses often need to make quarterly estimated tax payments. Skipping these can lead to hefty penalties, so planning ahead helps avoid an unexpected tax bill.
Not reconciling accounts regularly: If your books don’t match your bank statements, you may be overlooking errors, fraud, or cash flow issues. Regular reconciliations help catch mistakes early and keep your financials accurate.
Ignoring state and local tax obligations: Many businesses focus on federal taxes but forget about state and local requirements. Sales tax, franchise tax, and other regional obligations can add up, leading to compliance issues if overlooked.
Relying on DIY tax prep despite your business’ growth and complexity: What worked when your business was smaller may no longer be the best approach. As revenue grows, tax laws become more complex, making professional guidance essential to avoid missteps and maximize savings.
For those of you already working with you to get your taxes ready to file, you can rest assured that you’re in great hands. And for those of you who haven’t made the switch yet, but are feeling that tax time stress, we’d love to help you next quarter!
If interested, you can start the conversation here.