5 Big Mistakes Small Business Owners Make When Filing Taxes

Filing small business taxes is an important process for every business, although it’s enjoyable to very few. In fact, some flat-out dread it. The problem is that some business owners think of taxes only in the weeks leading up to the deadline. But there is a lot more to consider.

Discover below, six common mistakes small business owners make so you can avoid making them in your business.

1. Not Filing or Paying Taxes on Time

Where a taxpayer fails to file returns or pay the tax due, the relevant tax authority shall impose penalties and interest on the taxpayer, agent or employer from the due date of filing as provided in the applicable laws or regulations issued by relevant tax authorities.

If you miss the tax filing deadline, your business will be assessed a N25,000 for the first month and N5,000 per month for subsequent months as the  penalty by the FIRS that will continue to increase until the return is filed. If you neglect to pay your taxes, the FIRS will hit you with late payment penalty of 10%, plus interest.

It’s obvious why you need to make sure you file your taxes and make your payment on time; the penalties are severe. Worst case scenario, you can request a filing extension to give you a little more time and avoid the penalties.

2. Not Applying the Right Business Deductions

If you don’t want to pay more than you actually owe on your taxes, then business deductions are the way to do it. There are so many deductions that your business may qualify for including office furniture and supplies, advertising, licenses, equipment, start-up expenses and more. Review this list of potential business tax deductions to see where you can cut back on what you owe.

3. Not Tracking Expenses Accurately

It is very difficult to take any tax deductions if you don’t have a record of incurring those expenses. This means you have to be very detailed with your business records, including saving receipts, invoices and vouchers, tracking and categorizing expenses.

One of the best ways to do this is by working with a qualified bookkeeper all year long. Not only can a small business bookkeeper advise you on what could be deductible and how to track those expenses, but a bookkeeper can also streamline the tax process by managing your books every month, then compiling your tax information for an accountant to use when it comes time to file your taxes.

4. Not Separating Business and Personal Expenses

If you muddy the financial waters by intermingling your personal and business expenses you could be creating a big mess that will have to be cleaned up when tax time rolls around. Separate your business and personal expenses by maintaining (and using) separate bank and credit card accounts, keeping receipts separate, and paying yourself a salary instead of drawing directly from your business accounts. This is another area where a bookkeeper can advise you on how best to keep expenses separate.

5. Not Using an Accountant/Tax Consultant

It’s very tempting to go the less expensive route and do your business taxes yourself. While this may work for sole-proprietorships with an uncomplicated setup, it isn’t a good idea for more complex businesses. Not only do you run the risk of misfiling your return, but you may miss a few major deductions simply because you don’t know that you qualify for them.

When choosing an accountant or tax consultant, make make he or she is certified or chartered and has experience in your industry as well as with tax planning. You may also want to get references or go with an accountant that has been referred to you by a colleague or you have interactions with..

The act of filing taxes may happen just once per year, but the tax process has required tasks, payments, and considerations that have implications all year long. Avoiding the mistakes listed here will help make the tax filing process much less painful.

Where a taxpayer fails to file returns or pay the tax due, the relevant tax authority shall impose penalties and interest on the taxpayer, agent or employer from the due date of filing as provided in the applicable laws or regulations issued by relevant tax authorities.