{"id":1028,"date":"2015-10-26T00:00:00","date_gmt":"2015-10-26T04:00:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/avoid-these-common-tax-mistakes\/"},"modified":"2026-04-08T09:03:20","modified_gmt":"2026-04-08T13:03:20","slug":"avoid-common-tax-mistakes","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/avoid-common-tax-mistakes\/","title":{"rendered":"Avoid these common tax mistakes"},"content":{"rendered":"
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\n\t\t\t\t\t\t\tMoney Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
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\n\t\t\t\t\t\tAvoid these common tax mistakes\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t

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\n\t\t\t\n\t\t\t\t\"\"\t\t\t\tStacey McIntosh<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

In the flurry of launching a new business or first startup, filing your taxes can be a real learning curve. You won\u2019t want to wait until the last minute to try to figure things out. At the very least, it could lead to money left on the table \u2014 or worse, costly penalties or other legal repercussions.<\/p>\n\n\n\n

To make sure your new business is handling its tax obligations properly, run through these eight common mistakes:<\/p>\n\n\n\n

Not paying your quarterly taxes.<\/strong><\/p>\n\n\n\n

Businesses, including self-employed sole proprietors, are required to pay taxes on a quarterly basis. During your business’ first year, you get a free pass, and there are certain other exceptions based on how much you make. However, even if you\u2019re not required by the IRS to pay quarterly taxes, it\u2019s still good practice \u2014 waiting to pay a year\u2019s worth of taxes in one lump sum can give you quite a shock.<\/p>\n\n\n\n

The best way to stay on top of your quarterly tax obligation is to get into the practice of automatically setting aside a percentage of each payment or revenue. Then, take stock of your profit\/loss statement at each quarter and pay your quarterly bill accordingly. A financial advisor can help you estimate these payments if you need some help.<\/p>\n\n\n\n

Not keeping track of all your expenses.<\/strong><\/p>\n\n\n\n

From the moment you launch a business, you\u2019re able to deduct all \u201cordinary and necessary\u201d business expenses (e.g. office supplies, event fees, miles driven to meet with partners). Your biggest mistake is not keeping track of these expenses throughout the year and trying to gather every receipt when it\u2019s time to file. The bottom line is you can\u2019t deduct what you can\u2019t document, and failing to record as you go most likely means you\u2019re forgetting expenses and leaving money on the table.<\/p>\n\n\n\n

Not taking the home office deduction.<\/strong><\/p>\n\n\n\n

Many startups, small businesses and other work-at-homers get discouraged from taking the home office tax deduction, because it has traditionally been considered a red flag for getting audited. However, if you are legitimately entitled to the deduction, there\u2019s really no reason not to take it.<\/p>\n\n\n\n

To qualify, your home office needs to be used exclusively for business purposes. This could be a dedicated room or part of a room in your house. But holding a meeting at your dining room table or working from your living room couch won\u2019t entitle you to the deduction.<\/p>\n\n\n\n

If you do qualify, you can write off a percentage of your home expenses including rent\/ or mortgage payments, utilities and insurance costs. You can read more about it in IRS Form 8829<\/a>.<\/p>\n\n\n\n

Mixing equipment and supplies.<\/strong><\/p>\n\n\n\n

Both first-time and experienced business filers get tripped up by which expenses are considered equipment vs. supplies. Supplies include things that you use during the year (e.g. printer paper, pens, toner cartridges). Equipment (i.e. capital expenditures) are typically higher-value items that will last significantly longer than one year. For example, a new computer, server and office chairs are examples of equipment.<\/p>\n\n\n\n

When it comes to equipment, there are a couple of approaches: You can write off a portion for each year the appliances are in use, or write off the full amount \u2014 there\u2019s a max limit here \u2014 for the year you purchased it. So, if you bought a few new laptops for the business in 2013, you can write off the full price with your 2013 return \u2014 but you\u2019ve got to report these purchases as a capital expenditure by filing Form 4562<\/a>.<\/p>\n\n\n\n

If you mistakenly deduct your equipment or capital items as supplies, the IRS could determine that you improperly characterized the expense and that you\u2019re not entitled to the deduction.<\/p>\n\n\n\n

Not sending 1099s.<\/strong><\/p>\n\n\n\n

If you\u2019ve paid any freelancers, contractors, attorneys or other individuals more than $600 throughout the year, you\u2019re required to issue 1099-MISC forms to both the individual and the IRS. You\u2019ll need to send a copy to the individual by Jan. 31 and to the IRS by Feb. 28 (or March 31 if you\u2019re filing electronically). You typically don\u2019t need to issue a form if you’ve paid a corporation.<\/p>\n\n\n\n

If you don\u2019t file on time, you can expect up to a $250 penalty for each form you needed to send. You can check out IRS Form 1099-MISC<\/a> for more details on which types of payments require a 1099.<\/p>\n\n\n\n

Over-deducting your gifts.<\/strong><\/p>\n\n\n\n

Maybe you gave your clients holiday presents, or sent a colleague a thank you gift in appreciation for a valuable referral or piece of advice. Business gifts can be deducted, but there\u2019s a big catch. You can only deduct the first $25 given per recipient as an expense. So, if you sent Jack a $150 gift basket, you can only deduct $25 for it.<\/p>\n\n\n\n

If you end up reporting $3,000 in deductible business gifts for the year, make sure you can back that up. It means you gave out gifts to at least 120 different people. You can read more about deductible gifts here<\/a>.<\/p>\n\n\n\n

Choosing the wrong legal entity.<\/strong><\/p>\n\n\n\n

Your startup\u2019s legal structure affects how you report your taxes and how much you pay, so it\u2019s important to choose the right entity. For example, many start out as a sole proprietor or partnership, then find themselves paying too much in self-employment taxes. Creating a C Corporation, S Corporation or LLC that is taxed like an S Corp could help lower their tax bill.<\/p>\n\n\n\n

A quick discussion with a tax advisor or CPA can help you figure out which structure is right for your situation.<\/p>\n\n\n\n

Mixing personal and business.<\/strong><\/p>\n\n\n\n

New startup founders and small business owners often invest so much of their time and money in the company that their personal and business finances become indistinguishable. This practice can lead to major confusion come tax time, and in some cases, can lead to legal infractions or loss of company status (Any corporation or LLC is required by law to maintain separate financial records and accounts.) Avoid trouble by establishing a company financial account from the start and maintaining separate records for the business.<\/p>\n\n\n\n

Above all, any startup or small business owner must think of taxes as a year-long obligation, not just something to revisit once a year.<\/p>\n\n\n\n

Get accounting and tax help<\/strong><\/p>\n\n\n\n

We have a variety of accounting products for self-employed people as well as startup, small, and midsized businesses. Our products are flexible enough to travel with you even, for bookkeeping on the go or in the field. More than that, Sage also has a vast network of accountants who can help.<\/p>\n\n\n\n

Sage has more than 30 years of accounting experience. Let us help you.<\/p>\n\n\n

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