What Are the Top Tax Mistakes Small Businesses Make?

Starting and running a small business is no easy feat. There's a lot to juggle, from handling customer inquiries to managing inventory and everything in between. One crucial aspect that often gets overlooked, however, is taxes. 

In this blog, we’ll discuss the top tax mistakes small businesses make and provide tips on how to avoid them. And if you're in Perth, having a small business tax accountant Perth on your side can make all the difference.

1. Failing to Keep Accurate Records

The foundation of any successful business is a well-organized system, which also applies to your financial records. One of small businesses' most common tax mistakes is not keeping accurate and up-to-date records. Without clear documentation of your income and expenses, you could miss out on tax deductions or, worse, face penalties for underreporting.

How to Avoid This Mistake:

Implementing a sound bookkeeping system is essential. Whether you manage your records manually or use accounting software, staying on top of your financial transactions will help you avoid this tax blunder. If you’re unsure where to start, a small business tax accountant in Perth can guide you in creating an effective record-keeping strategy.

2. Misclassifying Employees and Contractors

Another common mistake that can have serious tax consequences is misclassifying workers. You could be liable for unpaid payroll taxes if you mistakenly treat an employee as an independent contractor. 

How to Avoid This Mistake:

Understand the distinction between employees and independent contractors. Employees are typically more closely supervised and have set hours, while contractors have more freedom in how and when they work. Consult with a small business tax accountant in Perth to ensure you classify your workers correctly and comply with tax regulations.

3. Not Taking Advantage of Deductions

Small businesses are eligible for various tax deductions significantly reducing their tax liability. However, many business owners fail to take full advantage of these deductions, either because they are unaware of them or don’t track eligible expenses.

How to Avoid This Mistake:

Take the time to research all available deductions, such as business travel, office supplies, and even the home office deduction. You may be leaving money on the table by not keeping track of these expenses. For tailored advice and to maximise your deductions, it’s best to work with a small business tax accountant in Perth who can ensure you claim everything you’re entitled to.

4. Not Paying Estimated Taxes

Many small business owners forget about estimated tax payments. You must make quarterly estimated tax payments if you don’t withhold taxes from your paycheck like a regular employee. Failing to do so can lead to hefty fines and interest charges.

How to Avoid This Mistake:

Ensure you know your estimated tax obligations and set aside the necessary funds each quarter. You can calculate your estimated taxes based on your projected income for the year or work with a professional, such as a small business tax accountant in Perth, to determine the appropriate amount. 

5. Mixing Personal and Business Finances

Using the same bank account for personal and business expenses is tempting, but doing so can lead to confusion and potential tax problems. Mixing finances makes it harder to track your business’s income and expenses accurately, which can result in missed deductions or incorrect tax filings.

How to Avoid This Mistake:

Open a dedicated business bank account and credit card to separate your personal and business finances. This will help streamline your record-keeping and make tax time much easier. If you're unsure about how to set up your financial structure, a small business tax accountant  can offer valuable advice on the best approach for your business.

Conclusion

Running a small business is challenging enough without the added stress of tax mistakes. You can keep your tax obligations in check by staying organised, classifying workers correctly, maximising deductions, and avoiding common pitfalls. Working with a small business tax accountant in Perth can give you the expertise you need to ensure your business is on the right track and compliant with tax regulations.