Three Mistakes Small Businesses Make on Their Tax Return

I have been preparing returns for small business owners in the San Antonio area since 2010, and the mistakes that cost people the most money are almost never the ones they worry about. Owners ask me about audit risk and about which deductions they might be missing. Meanwhile the return sitting in front of me has one of three problems, and I see the same three over and over.

Mistake one: not paying yourself a reasonable salary

This one shows up most with S-Corp owners. If your business is taxed as an S-Corp and you work in it, the IRS expects you to pay yourself a salary through payroll before you take the rest of your profit as a distribution. A reasonable salary has to reflect what someone doing your job, in your industry, in your area, would actually be paid. Getting the salary number right at the start of the year is far less work than trying to fix it after the return is filed.

Mistake two: failing to keep proper accounting records

A shoebox of receipts, a bank statement without categories, or a memory of what a transaction was for six months later, is not a set of books. Weak records cost you in two ways. Deductions you earned get missed because nobody can substantiate them. And if the return is questioned, the burden is on you to show the numbers are right. Keeping a simple, current set of books protects both.

Mistake three: mixing business and personal expenses

Running personal spending through the business account, or business spending through a personal card, blurs everything downstream. Bookkeeping gets slower. Liability protection for an LLC weakens. Deductions get harder to defend. A separate business checking account and a separate business card, used consistently, solve most of this on their own.

If you recognize your own return in any of this, I offer a free consultation. You can reach me at (210) 842-8197 or set up time in person or by video.