April 15th is fast approaching. Many small business owners prepare their own tax returns, so we wanted to share a few common mistakes and suggestions on how best to avoid them.
Internal Revenue Service (IRS) instructions for preparing your tax returns answer many of the most commonly asked questions about taxes. They can be a big help for individuals and small business owners preparing their own taxes. However, it’s the little mistakes that can cause problems. Here are a few important recommendations to keep in mind:
- Prepare your tax return as early possible. Waiting until the last minute significantly increases the chances of making mistakes. Give yourself time to gather documents or research details. Even better, collect these documents throughout the year in a special file so you have them ready at tax time.
- Use the correct tax rates. Tax tables can be extremely complicated to read and understand; use particular care.
- Fill in every line. If a line item on a tax form doesn’t directly apply to you or your business, put a zero or a strike through where the amounts would be. That can indicate you determined the line item does not apply to you.
- Make sure all your tax return documents are complete. Remember to attach forms, schedules, supporting statements and explanations. If you need more space, attach separate sheets that are the same size and format as the printed forms. Transfer the totals onto the printed forms. Put your name, social security number and date on all extra pages.
- Rounding is generally acceptable for tax documentation. For example, don’t forget to include those fast business loans you needed for your company before the holidays. Round off all amounts on your tax return. Round up to the nearest dollar all amounts that are fifty cents or more. Round down all amounts that are between one and 49 cents.
- Pay and file on time. The fastest way to get the wrong attention from the IRS is to pay your taxes or file your return late.
- Reply promptly to all IRS inquiries. Ignoring the IRS invites trouble—you could be audited or have your assets seized.
- Ask another person to review your tax return to check your math and ensure that all fields are complete. Math errors are the most frequent mistake on individual tax returns.
- Sign the tax return. If you pay someone to prepare your taxes, that person must sign your tax return, as well, but you must sign and date your own tax return no matter who prepares it.
- Keep copies of your tax return and all supporting documents. You will probably need them again next year, and you should keep them for another five to seven years after that before destroying them.