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The 4 most common tax mistakes small businesses make – how to avoid them

Building a successful company takes more than loyal customers and innovative products. Making sure your taxes are filed promptly – and accurately – can lay the groundwork for a healthy financial future. But scrambling to gather receipts and sort bank statements as the June 15 tax deadline looms is a sure-fire way to make mistakes.

Fortunately, there are steps small business owners can take to avoid errors and prepare for the tax season. Here are the 4 most common mistakes small business owners make – and how to course correct:

You consider a shoebox a handy financial tool

The beaten-up shoebox continues to slow down small business owners – and frustrate accountants. On the one hand, paper receipts make tracking tax-deductible expenses a lot easier than poring over bank statements with a highlighter.

“The level of detail within an individual line item in your bank account can vary quite a bit whereas a receipt can tell you specifically what you spent the money on,” says Matthew Baker, vice president of strategic planning for accounting software company FreshBooks.

Yet the age-old process of gathering dog-eared receipts and entering them manually into an Excel spreadsheet wastes valuable time and company resources. Luckily, bookkeeping apps, like ReceiptBank, let entrepreneurs scan copies of receipts into a software program for easy recording.

You believe that one bank account is better than two

Like business and pleasure, some things are better kept separate. Yet many small business owners make the mistake of relying on a single bank account for both personal and business expenses. “Running everything through one account and not being able to parse it out [come tax season] is the worst-case scenario,” warns Baker.

For one, a bank statement won’t tell you whether that purchase from your neighbourhood electronics store was for your son’s X-box or an office printer. Secondly, by relying on a single set of bank statements to track expenses, you’re more likely to miss important business write-offs.

However, Baker advises, “If you have a business credit card, you’re not going to get confused around whether something is a personal expense or not.” A dedicated business credit card, debit card, credit line, chequing account – they’re all financial instruments that can help you maximize deductions.

You tackle tax season – solo

Generating revenue – not general ledgers – should be the primary focus of a small business owner. Yet many entrepreneurs err in thinking that they can cut costs by filing their own tax returns. “A tax professional should be your lifeline,” advises Baker. “To do it 100 percent on your own during tax season would be awfully daunting.”

To be sure, hiring a seasoned tax professional to oversee your finances can be costly. But the right expert can also introduce you to rebates and tax incentives that can easily offset this upfront expense.

However, the trick is “hiring the right accountant for your business,” says Baker. “Not all accountants are created equal. You want to make sure they work with other small businesses in your area and in your profession. At the end of the day, you want somebody who’s done it before and who knows how to make tax season less stressful and challenging.”

You treat tax season as an annual review of your business

Tax season is an excellent time to take stock of the year’s progress – and pitfalls. But growing a company requires year-round diligence. That’s why using software, like FreshBooks and TurboTax, to generate monthly reports on everything from customer profitability to product pricing can identify problem areas and eliminate last-minute, tax-season surprises.

“Regularly reviewing finances is something all small business owners should do,” says Baker.

To learn how you can pay your taxes accurately and on time right from your online business account, read here.