You can make tax season easier by steering clear of these traps.

As a small-business owner, you wear many hats, one of the most important, yet sometimes vexing, being that of bookkeeper. Between logging profits, losses, and everything in between while trying to follow often complicated tax codes, it can be challenging to know how to file your taxes correctly—but it’s vital to do so since penalties can range from minor to massive. Here are some of the most common tax mistakes to keep in mind as you’re preparing to file in 2025.

Filing incorrectly or incompletely

This issue can take several shapes, including sending taxes late or with forms missing; implementing extra steps to avoid accidentally using the wrong one, such as keeping business cards on the left side of your wallet and your personal ones on the right. Daily discernment between business and nonbusiness expenses is needed as well: as an example, money spent while using your personal car for your company is usually considered taxdeductible, but getting a haircut to meet a client isn’t.

Misidentifying worker classifications

There can be a fine line between hiring an employee and an independent contractor—and it’s imperative that you know the difference since misclassifying them on your tax forms can result in an audit or worse. In general, the IRS considers behavioral and financial control (e.g., who sets the rules and salaries) and the overall relationship of the parties (e.g., whether benefits are provided and income tax withheld) to be the key indicators of whether a worker is an employee. So, for example, if you dictate when and where someone works and train them about the job, they would likely be considered an employee.

Conflating business and pleasure

Simply put, intentionally or unintentionally claiming personal expenses as business deductions is a no-no. The easiest way to keep these aspects of your life in distinct silos is to have dedicated credit cards and bank accounts for each. Consider implementing extra steps to avoid accidentally using the wrong one, such as keeping business cards on the left side of your wallet and your personal ones on the right. Daily discernment between business and nonbusiness expenses is needed as well: as an example, money spent while using your personal car for your company is usually considered taxdeductible, but getting a haircut to meet a client isn’t.

Failing to use deductions

On the other hand, you may be leaving money on the table if you don’t understand the full breadth of what qualifies as a business deduction. For instance, several travel expenses, such as transportation, lodging, and food, along with certain gifts and 50 percent of your business meals may be deductible on your federal forms. Professional-development or educational resources for your team, business-related interest payments, and possibly even home-office expenses may qualify as well. Consult the IRS’s Publication 463 to get all the details about such federal deductions.

Steps to take
The aforementioned pitfalls are just a few of the potential ones to watch out for when filing your company’s taxes. The ideal way to be your business’s best friend come tax time? Be supremely methodical and keep pristine records throughout the year; a program like QuickBooks (also tax-deductible!) can be a godsend for this. In addition, IRS.gov provides a tax guide for small businesses that you should review thoroughly and keep handy.

If you don’t have a head for math or are swamped by other duties, consider hiring someone with the necessary skills to keep your finances accurate. And remember that there are plenty of popular tax software options you can use— TurboTax, TaxSlayer, and H&R Block being some notable programs—to make the filing process easier. For ultimate peace of mind, enlist the services of a tax accountant or CPA to handle this vitally important yet challenging aspect of being a small-business owner.

TAKE ACTION:

Ahead of tax season, determine which forms, tools, and professional advice you’ll need to file pristine tax forms.