5 Last-Minute Tax Tips For Small Business Owners
Welcome to Selfmade Finance School, our new money series with Block Advisors to help small business owners with their tax, bookkeeping, and payroll needs year-round. This week, we recap some major learnings to remember during tax season and give helpful tips for you to know before you file.
Over the past two months, I have taken you on a full tax journey. We talked about the pandemic, whether you should hire a tax professional (you should), new tax jargon that is now impressing all of your friends, and so much more. But the time has now come to put 2020 to bed, file your taxes and focus on the future. Even though the federal tax filing deadline has been pushed back by a month to May 17, go ahead and cross tax filing off your list now! But before you officially file, you should double check to make sure everything is in good order. Here are some final tips before you file:
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Should You File An Extension?
If it is tax day and you still haven't filed your taxes, you should probably consider filing an extension so you don't mess anything up. For more info on this, please check this piece. Remember that just because you are filing an extension does not mean you don't have to pay your tax liability if you have one. Generally, you must pay at least 90% of your tax liability to avoid the 'failure-to-pay' penalty. Also, states have different rules on filing extensions. Many states require you to file a state extension in addition to a federal extension.
Double Check Your Math
My son's second-grade teacher is always reminding him to check his work. It's a good life lesson. This should be applied to checking all your documents before you officially file your taxes. According to the IRS, they found approximately two million math errors each year between 2015 and 2017. Depending on the type, an error might impact the size of your refund. If the IRS fixes a math error on your tax return, it will send you a notice indicating what was corrected and how it impacts your tax return and your refund. Depending on the size of your error, it could change the size of your refund, or result in a tax liability when you were expecting a refund. If you disagree with them, you will need to go through an appeal process which slows down your return and your refund.
"You can avoid this worry by filing your small business taxes with Block Advisors," said Cathi Reed, Regional Director, Block Advisors. "We guarantee 100% accuracy in our taxes, bookkeeping and payroll services and will reimburse you for penalties and interest if we make an error on your return."
Pay Close Attention To Instructions
Taxes and the forms that go along with filing your taxes are incredibly confusing. Also, make sure your basic information—such as your name, Social Security number and filing status—is correct and that financial information is reported on the right line. Always proofread and check for typos.
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A Few Other Common Errors to Avoid (according to the IRS)
Check for missing or inaccurate Social Security numbers. Also, make sure you spelled your name right, and remember to match your name exactly as it appears on your Social Security card. Finally, double-check that you've entered the right bank account numbers. Taypayers who are due a refund and choose direct deposit need to make sure they use the correct routing and account numbers on their tax return.
Sort Out Your Refund
Also, check to ensure you have told the IRS how you want your refund handled. If you overpaid your taxes and are due a refund, be proactive about where you want that money to go. If you do nothing, the IRS will send you a check in the mail. To expedite this, you can add your bank account information (account number and routing number) so that refund will be deposited directly into your account. You can also use your refund towards next year's taxes.
Finally make sure you keep a copy of your signed return, along with proof of filing (an acknowledgement that your e-filed return has been accepted by the IRS or a certified receipt for a paper return sent by mail). Having this proof will protect you from any claims by the IRS that you filed late or not at all. Also, keeping this copy readily available will help you get ready for next year's filing.
If you have been following along on this tax journey with me, you will know by now that my most important piece of advice is to hire a tax professional to help you with your filing. I also recommend that if you have a growing business or feel like you are over your skis in terms of optimizing your tax situation, you should hire someone to help you throughout the year. Block Advisors is a great option! They understand that most small business owners started their business to pursue a passion, not to crunch numbers. They'll take care of your tax filing and financial tasks so you can focus on what you love. I hope you are filed and are now sitting on a big refund. And I hope you have a great 2021.
*All details were sourced from IRS.gov and blockadvisors.com