Insights

In 2024, businesses are facing a more complex tax environment than ever before. From navigating new tax laws to managing compliance risks, it's easy for business owners to make costly mistakes. Even small errors can lead to penalties, missed opportunities, or inefficient tax strategies that drain profits. The good news is that these mistakes are avoidable with a little foresight and smart tax planning.

Whether you're a small business owner, an entrepreneur, or a seasoned CEO, understanding the common tax pitfalls and knowing how to steer clear of them can save your business significant amounts of money. Here’s a rundown of the top 10 tax mistakes businesses are making in 2024—and how to avoid them.

1. Neglecting to Maximize Deductions

One of the most common mistakes businesses make is failing to take full advantage of available deductions. Whether it's business expenses, vehicle use, or office supplies, many business owners overlook deductions that could significantly reduce taxable income. Additionally, the IRS offers a variety of tax credits, including those for R&D or energy-efficient improvements, that are often underutilized.

How to Avoid It: Work closely with a tax professional to ensure you’re maximizing deductions and credits that apply to your specific business. Keep detailed records of all expenses and activities related to the business to ensure no deduction is missed.

2. Misclassifying Employees vs. Independent Contractors

With the rise of remote work and gig economy jobs, many businesses incorrectly classify workers as independent contractors instead of employees. This can lead to hefty fines, back taxes, and penalties from the IRS, which often scrutinizes worker classification.

How to Avoid It: Ensure you're correctly classifying employees and contractors. Independent contractors should meet specific criteria, including working autonomously and controlling how they complete tasks. A misclassification can result in costly audits, so consult with a tax professional if you're uncertain.

3. Overlooking Estimated Quarterly Taxes

Failing to pay estimated quarterly taxes is a common mistake for businesses, especially those with fluctuating incomes. If you're self-employed or run a small business, you are generally required to pay quarterly taxes to avoid underpayment penalties and interest charges.

How to Avoid It: Make sure you’re calculating and paying your estimated taxes on time. If you expect significant income fluctuations, adjust your quarterly payments to avoid over- or underpayment penalties.

4. Not Keeping Up With Changing Tax Laws

Tax laws are constantly evolving, and failing to stay updated on changes can result in costly mistakes. For example, tax credits, deductions, or tax rate changes can directly affect your business's bottom line. The TCJA (Tax Cuts and Jobs Act) introduced many changes that are still being implemented today.

How to Avoid It: Stay informed by subscribing to reputable tax news sources, and schedule regular check-ins with your tax advisor to discuss any changes that may impact your business. Adjust your strategy accordingly to ensure you're compliant and taking advantage of new opportunities.

5. Ignoring Sales Tax Obligations

With the rise of e-commerce and remote sales, many businesses fail to collect and remit sales taxes in the appropriate states. The Supreme Court's 2018 South Dakota v. Wayfair decision greatly expanded sales tax collection requirements, meaning even small businesses selling across state lines must comply.

How to Avoid It: Use sales tax software or work with an accountant who can help you track and remit sales tax for each state where you do business. This will help you avoid costly penalties for noncompliance.

6. Failing to Plan for Succession and Exit Taxes

Whether you’re planning to pass down your business to family members, sell it, or transition it in another way, failing to plan for the tax implications of succession and exit strategies can result in steep taxes and penalties.

How to Avoid It: Plan early by working with an accountant or financial planner to develop a tax-efficient exit or succession strategy. Utilize strategies like gifting, trusts, or tax-deferred exchanges to minimize the tax burden when it’s time to sell or transfer your business.

7. Not Taking Advantage of Retirement Plan Options

Many business owners miss the opportunity to reduce their taxable income by contributing to retirement plans. Plans like SEP IRAs or 401(k)s offer tax benefits while helping you save for the future. Business owners can deduct contributions to these plans, which can be a significant tax-saving strategy.

How to Avoid It: Contribute to retirement plans for yourself and your employees. This not only helps you save for retirement but also reduces your taxable income for the year.

8. Failing to Deduct Business Vehicle Expenses

Many business owners who use their personal vehicle for business purposes fail to deduct vehicle-related expenses, including mileage, gas, maintenance, and insurance costs. The IRS offers a standard mileage rate deduction, which can be a significant savings.

How to Avoid It: Track your business-related driving carefully and use either the standard mileage deduction or actual expense method to claim vehicle-related deductions. Keep detailed records to back up your claims in case of an audit.

9. Not Keeping Proper Records

Inadequate record-keeping is a critical mistake that can cost you when it comes time to file taxes or during an audit. Without clear, organized records, you might miss out on deductions, credits, or even face penalties for errors.

How to Avoid It: Invest in accounting software to keep track of all income, expenses, and financial transactions. Keep receipts, invoices, and documentation for everything related to your business expenses to avoid issues down the road.

10. Not Seeking Professional Tax Advice

Many business owners try to handle their taxes on their own or rely on outdated software without consulting a tax professional. As a result, they may miss key deductions, fail to plan for tax liabilities, or make errors that could lead to penalties.

How to Avoid It: Work with a tax professional who understands the complexities of business taxes and can guide you through tax planning, filing, and compliance. A qualified advisor can help you minimize taxes, avoid common mistakes, and ensure your business stays on the right track.

Final Thoughts

Avoiding these 10 common tax mistakes can make a huge difference in your business's financial health in 2024. By staying organized, keeping up with changes in tax laws, and seeking professional advice, you can minimize your tax liability, stay compliant, and maximize your bottom line. Remember, tax mistakes aren’t just costly—they can jeopardize the future of your business. So take action now to prevent them and secure your business’s financial future.

Have any tax-related questions or need expert advice? Don’t hesitate to reach out to us. Your business deserves the best possible tax strategy to ensure continued success!