Business Tax! Running a small business is no small feat. Between managing clients, employees, and daily operations, taxes often become an afterthought—until they’re not. Unfortunately, tax mistakes can be costly, leading to unnecessary expenses, penalties, or even audits. So, let’s talk about some of the most common tax mistakes small business owners make and how you can avoid them.
1. Overlooking Professional Tax Guidance
One of the biggest mistakes small business owners make is skipping professional business tax guidance. It’s tempting to rely on Google or TikTok for tax advice, but not everything you see online is accurate (or legal). Tax laws are complex, and what works for one business may not work for yours.
A qualified tax professional can help you strategize, ensuring you’re maximizing deductions, timing major purchases correctly, and staying compliant with tax regulations. Think of it as an investment rather than an expense—one that could save you a lot of money (and headaches) down the road.
2. Poor Timing on Big Purchases
Timing is everything—especially when it comes to buying major assets for your business. Should you make a big purchase this year or wait until next year? It depends on your income levels.
If your income is high this year, purchasing assets before year-end could help lower your taxable income. On the flip side, if you expect next year’s income to be significantly higher, delaying purchases might be the smarter move. A tax professional can help you time these decisions to maximize your savings.
3. Neglecting Retirement Plan Contributions
Retirement savings aren’t just good for your future—they’re also a great way to reduce your taxable income. Many small business owners overlook the benefits of contributing to a retirement plan, missing out on valuable tax deductions.
Depending on your business structure, you might qualify for a SEP IRA, Solo 401(k), or another retirement plan. By contributing regularly, you’re not just securing your future; you’re also lowering your current tax liability.
4. Poor Record-Keeping
If you’re only reviewing your financials at the end of the year, you’re setting yourself up for a stressful business tax season. Many small businesses don’t track their income and expenses monthly, leading to disorganized records and potential missed deductions.
Keeping up with your books throughout the year ensures you have accurate financial data when tax time rolls around. It also helps you make informed business decisions rather than just glancing at your bank account balance to gauge profitability.
5. Missing Out on Deductions
Small business owners often leave money on the table by not taking full advantage of available deductions. Some commonly missed deductions include:
- Mileage: If you use your personal car for business purposes, you can deduct mileage—but only if you keep a log.
- Travel Expenses: Business-related travel expenses can be deductible, including flights, hotels, and meals. With a little planning, you can mix business with leisure and still claim part of the expenses.
- Home Office Deduction: If you have a dedicated home office space, you may qualify for a deduction based on its percentage of your home’s total square footage.
The key to claiming deductions? Keep detailed records. The IRS won’t allow deductions without proper documentation.
6. Underpaying Estimated Taxes
Unlike traditional employees who have taxes withheld from their paychecks, business owners are responsible for paying estimated taxes throughout the year. Many small business owners either don’t pay enough or forget to make payments altogether.
The IRS requires quarterly estimated payments, and failing to pay enough can result in penalties. In 2024, the penalty for underpayment was 8%, and in 2025, it’s still sitting at 7%—which can add up quickly.
To avoid a nasty surprise at tax time, work with a professional to estimate your business tax liability and set up a payment plan that keeps you in the clear.
7. Mismanaging Payroll Taxes
If you have employees, payroll taxes can be a major pitfall. Some business owners try to cut corners by misclassifying employees as independent contractors, which can lead to hefty IRS fines if done incorrectly.
Others withhold payroll taxes from employees but fail to submit them to the IRS on time. This is a huge red flag that can trigger penalties and even legal trouble. Keeping payroll taxes in check requires diligent record-keeping and timely payments.
8. Not Understanding Safe Harbor Rules
Safe harbor rules help protect business owners from tax penalties by allowing them to pay either:
- 90% of their current year’s tax liability, or
- 100% (or 110% for higher earners) of their prior year’s tax liability.
This method works well if your income is consistent or increasing. However, if your business revenue fluctuates, you might end up overpaying or underpaying. Again, a tax professional can help determine the best strategy for your situation.
9. Confusion Over Quarterly Business Tax Deadlines
Many business owners assume estimated tax payments follow standard calendar quarters—but they don’t. The IRS sets specific due dates:
- April 15 (Q1)
- June 15 (Q2)
- September 15 (Q3)
- January 15 (Q4 of the previous year)
Missing these business tax deadlines can lead to unnecessary penalties. Setting up automatic reminders or working with a tax professional can ensure you stay on top of your payments.
10. Not Preparing for Tax Law Changes
While there aren’t major tax changes coming in 2025, some significant provisions from the 2017 Tax Cuts and Jobs Act are set to expire at the end of the year. A few key ones to note:
- Bonus Depreciation: The allowance drops from 60% in 2024 to 40% in 2025 and is scheduled to phase out entirely. However, there’s a push to reinstate 100% bonus depreciation, so stay tuned.
- Qualified Business Income (QBI) Deduction: This allows certain business owners to deduct up to 20% of their income but is also set to expire unless extended by new legislation.
Being proactive about potential changes can help you plan ahead and avoid unexpected tax increases.
Final Thoughts
Taxes don’t have to be scary or overwhelming. By staying proactive, keeping organized records, and working with a qualified tax professional, you can avoid costly mistakes and maximize your savings. Think of taxes like any other aspect of your business—something that requires strategy and planning. The more informed you are, the better positioned you’ll be to keep more of your hard-earned money.
So, next time tax season rolls around, you won’t be scrambling—you’ll be confidently prepared.
