2 Challenges Tax Season Brings to Your Small Business

We are rapidly approaching April, which means tax season is in full swing. This year, you have until April 18th to file your tax returns and make payments to the IRS. You technically have an extra few days compared to last year as April 15th (the normal tax day) falls on Good Friday. So, you do have a few more days to check everything and ensure you file your tax return without any complications.

Believe me, it’s crucial to avoid complications when filing a tax return for your business. There are two different ways that tax season can hurt your small business – if you’re not careful. Unfortunately, lots of small companies aren’t careful, so they can lose a lot of money during this period.

Clearly, the best way to avoid complications is by being aware of how tax season can hurt you. So, here are the two ways it can do damage to your finances:

Paying too much tax

Yes, it is possible for a small business to pay too much tax. This tends to happen when you don’t have a firm knowledge of taxes and business expenses. As a result, your profits are much higher than they might be, so you’re paying way more than you need to. It’s super important to always manage your accounts and keep records of every transaction so you can provide accurate details on your comings and goings, letting you pay the right amount of tax. Using some tax preparation software services can help you stay on top of things and avoid overpaying.

Moreover, there are ways to legally reduce your tax bill as much as possible. It all comes down to understanding what can be put down as a tax-deductible business expense. Here, working with an accountant can help you whittle down your tax bill as much as possible, while still following the law. Thus, you pay less tax without getting any penalties.

Not paying enough tax

Conversely, tax season can hurt you when you don’t pay enough tax. If you have a tax bill, but you don’t pay all of it by the required dates, you will be hit with penalties. Not only that, if you lie about your finances to try and pay less tax – or do illegal things to reduce your tax bill – you will be hit with penalties and massive fines.

Ironically, in trying to pay less tax, you end up paying a lot more. This is why you need to work with professionals to help you lower your tax bill as much as possible without it being illegal. Also, you need to stay updated with all the payment dates to avoid missing payments and getting hit with fines.

Let’s be honest, taxes are never fun for anyone. Tax season can harm your business if you’re not careful. Don’t pay more tax than you need to as it can disrupt your cash flow and make it hard to run your business. But, don’t drift too far in the opposite direction and avoid paying tax that you owe as it will mean your business is hit with fines that can damage your finances.