With tax season just around the corner, make sure you avoid these common mistakes.
Tax Day 2017 is nearly upon us. As we inch closer and closer to the impending deadline, businesses across the nation are scrambling to get their financials in order and complete their tax filing. Hopefully you read the article that posted in January on tips for early tax prep and took those steps to help smooth your tax season. If not, don’t despair: there’s still plenty of time to get your tax filing done and submitted on time. As you work toward the finish line, though, it’s important to be aware of some of the common pitfalls to which many fall victim. Read on for more about some of the big tax season mistakes to avoid.
Mistake: Falling for a Scam
Tax scams are becoming increasingly prevalent, both via email and phone. In fact, just last week, the IRS reaffirmed the phone scam threat. For small business owners, it’s important to know that the IRS WILL NOT call or email. Rather, they will MAIL tax notices to the taxpayer – this is how they communicate. Never give out any information over the phone, and don’t click on email links – they could be from a fraudulent IRS representative, and responding could delay filing, risk credit card exposure and ultimately result in lost funds. Be vigilant about potential scammers, and only communicate with the IRS in safe, standard ways.
Mistake: Misunderstanding Extension Rules
If you suspect that your business will owe the government money this tax season, your urgency to file could be impacted. However, as you evaluate your options, it’s important to understand this key fact about applying for tax extensions: the extension only grants extra time to file, not to pay a resulting tax bill. So, if you file for an extension but expect to owe, you are still responsible for paying that bill by the original tax due date. Failure to do so could result in added interest and penalties, on top of the original amount due. This is a common mistake for small businesses, but one that can be easily avoided with some communication and a little planning. Although tax extensions are sometimes unavoidable, it’s always best to file by the original deadline whenever possible to circumvent confusion and possible fines.
Mistake: Forgetting About Health Forms
This issue applies to sole proprietors only. The Affordable Care Act has been in place for several years now, which means that in addition to regular tax forms, business owners should also be receiving 1095 forms as part of their filing requirements. Tax preparers will ask for this form – don’t disregard it! For sole proprietors, including your form 1095 in the tax information supplied to your tax preparer is critical to proper tax preparation.
Mistake: Failure to Plan for Next Year
The deadline for 1099 submissions – the form required for independent contractors – has already passed for 2016, but here’s a bit of advice for next year. Historically, 1099 documents have not been considered a top priority during tax season. There is little urgency to complete them on time, and due dates are often missed. Moving forward, however, businesses must take a new approach to these forms and focus on preparing them properly and in a timely fashion. Here’s why: The self-employed segment of our economy has expanded in recent years, and as a result sub-contractor numbers have increased, which means the government will be paying closer attention to 1099s going forward. To ensure timely and accurate submission of these forms, make sure you have W-9 updates from all contractors on file – including tax ID, address and proper name – and that your records are up to date.
In conjunction with this, the government is also cracking down on ensuring that individuals receiving 1099 forms actually qualify as subcontractors – often small businesses mistakenly treat those that would otherwise be classified as employees as subcontractors. Authorities are becoming more vigilant when it comes to identifying this misclassification because this error results in lost tax dollars. Moving forward, it’s increasingly important for companies to ensure proper classification between employees and subcontractors and to have proper documents on file for each.
Mistake: Poor Organization
Finally, some general advice: For individuals, Tax Day 2017 falls on Tuesday, April 18th. Deadlines vary for businesses, however, so it’s important to verify with your tax preparer. For many companies, March 15th is a key deadline, so business owners should aim to have their 2016 financial information completed no later than February 20th, if possible. Don’t delay in getting this done – taxes are becoming increasingly complex, so proactivity and urgency are critical to avoid eleventh hour confusion and missed deadlines. Additionally, proactive financial organization ultimately helps companies beyond just tax returns; it informs 2017 budget plans as well. Once financials are in order and taxes are filed, business owners gain a better understanding of their financial situation and can make more informed decisions during the year.
It’s also important to note that tax preparers usually do their work on a first-come, first-serve basis, so waiting to submit forms to a preparer means risking delayed submission. As a group, tax preparers always strive to meet deadlines, but the tax payer ultimately bears the responsibility of submitting on time. As such, ensuring information gets to the tax preparer in a timely fashion is of the utmost importance.
What’s the overarching theme when it comes to tax prep? Organization. Stay organized, be vigilant about details and submit on time. Tax season can be stressful, but proper organization and time management are the keys to making it through this final stretch unscathed.
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