Mistakes to Avoid When Filing Your Taxes

Mistakes to Avoid When Filing Your Taxes

As April 15 rolls around each year, many people across the U.S. begin to fret. Filing taxes is a stressful time of year, but avoiding common tax mistakes can help offset stress and fears of doing it wrong.

Filing income taxes involves many complexities, but you still need to get it right. The IRS doesn’t accept misunderstanding tax laws as an excuse. In some cases, errors can lead to you overpaying as well.

To sidestep tax filing mistakes, it’s a good idea to take the time to learn about taxes and how to file a tax return free of errors so you don’t end up underpaying or overpaying your taxes.

Common Tax Mistakes to Avoid During Filing

To help prevent tax errors, the best place to start is to understand the biggest tax mistakes business owners tend to make. The first step is to determine if you will be filing your small business taxes with your individual tax return or if it should be separate.

Tip: Most small business owners will file income and business taxes at the same time.

The following are the most common tax mistakes to avoid during filing.

Listing incorrect filing statuses

It’s essential for all taxpayers to correctly determine their filing status because this information is used to let the IRS know how it will apply tax. Keep in mind that businesses are also taxable entities, even if they’re filed separately.

Individual tax returns will select either single, married filing jointly, married filing separately, head of household, and qualifying widow or widower with dependent child. Some business structures are required to file with their own status which is completely separate from the business owner’s individual tax return.

Corporations must be taxed as “C-Corp” or “S-Corp,” while LLCs can be taxed as “disregarded.” It can be helpful to speak with a tax specialist because there are advantages and disadvantages associated with different statuses.

Filing taxes too early

To get the task off their proverbial plate, some business owners opt to file their taxes as soon as possible. Filing too quickly can be a mistake because this sometimes leads to missing key information on the tax return or neglecting to include important tax documents. The IRS may delay processing if a return is filed with missing information.

Entering incorrect Social Security numbers

After entering a Social Security number on a tax return, be sure to double-check it to make sure there are no numbers transposed or mixed up. Mistakes can lead to serious issues with the IRS because of having a typo in a tax identifier. Always make sure Social Security numbers are entered exactly as they appear on the official card.

Underestimating taxes owed

Employees have taxes withheld from each paycheck, but since businesses don’t collect taxes for themselves this way, they must pay their tax obligations throughout the year. This typically happens every quarter.

While it can be difficult to pinpoint an exact amount to pay, the IRS expects businesses to make suitable estimates. If a company is found to intentionally underestimate what they owe, the IRS may impose penalties.

Underreporting income

It is the law to report all taxable income—so not unlike individuals, businesses are also expected by the IRS to accurately report what they’ve earned over the year. If the federal agency finds a company has intentionally underreported or accidentally underreported income, then it may impose penalties which can be costly. It’s worth the effort to double-check the math when calculating income to report to the IRS.

Incorrect/inaccurate banking information

Correctly entering bank information is essential when submitting a tax return because once you send it either via mail or electronically, it cannot be edited or changed.

In the event your company owes taxes, the IRS won’t be able to collect tax if it can’t withdraw due to a wrong account number being entered (if you choose to pay electronically). If your business is due a refund, the bank won’t accept the money, and you’ll have to wait to receive a check.

This is a simple issue to avoid by double-checking account information. However, it is a common tax mistake that is often made.

Over-reporting business expenses

The IRS legally permits businesses to deduct certain business expenses to reduce tax obligations. However, if a company is found to be over-reporting or inventing business expenses to decrease the amount owed to the federal tax agency, there will likely be an audit, along with potential penalties imposed.

What Happens If You Make Tax Filing Mistakes

Making mistakes on a tax return can bring additional layers of stress because the government requires you to file accurately. If you make errors on your return, you’ll have to try to rectify them or even maybe face an audit. Making mistakes on tax returns usually ends up triggering one of the following scenarios to fix the problem.

Filing an amended tax return

The good news is your business can legally amend its return to correct errors, even if the taxes have already been submitted.

● Sole proprietors and single-member LLCs should use Form 1040X (Amended U.S. Individual Income Tax Return)

●     Corporations should file Form 1120X (Amended U.S. Corporation Income Tax Return)

The requirement for amendments is to file corrections within three years of the original tax deadline.

Getting an IRS audit

If the IRS feels a tax return looks suspicious or incorrect, they may call for an audit to be done. Most of the time, audits are not random, they are generally chosen. This is a good reason to be careful not to make any of the common tax filing mistakes. Audits are done either by mail, at an IRS office, or at your place of business. Audits are lengthy and can create stress for business owners.

Paying penalties

Another scenario stemming from mistakes on tax returns is the IRS issuing a penalty, which is usually a monetary fine. Once you pay, this typically resolves the situation. It’s important to remember that if you owe the federal agency money, you’ll have to pay interest since this will be viewed as late filing.

If you run into problematic issues with your company’s tax return, it’s a good idea to discuss your situation with an accountant, tax attorney, or another tax specialist. This way, you can be certain you’re getting the best solution for your tax issue.

How to Avoid Making Any Mistakes On Your Taxes

Making mistakes is a realistic possibility every taxpayer face, but you can be proactive and take steps to avoid potential errors and submit an accurate tax return.

● File your return electronically.

● Utilize tax software to check math calculations (paper tax returns are at higher risk for errors since it’s done by hand).

● Organize write-offs by saving receipts, documents, and any other information you need to file an error-free return.

●     Carefully proofread and double-check each segment of your tax return before submitting.

Many business owners choose to work with a tax professional to ensure they always file correctly. Tax experts are up-to-date with current laws (which are always subject to change) and know the best ways to file correctly.

One question you might have is, “Are accountants liable for tax mistakes?” The answer is no. The bottom line is the taxpayer is always responsible for their business’s tax return. Research before hiring a tax expert so you know you have a reputable and experienced individual doing your taxes.

Properly Obtain Your EIN

Any business with employees working for them must first obtain an Employer Identification Number (EIN), which is often referred to as a “tax ID.” Even small companies operating without employees can benefit from applying for an EIN. To obtain one, you’ll need to provide the following information.

● Gather information about your company including

○ Legal name

○ Business address

○ Phone number

○ DBA designation (“doing business as”)

○ Business structure (e.g., LLC, sole proprietorship, partnership, S-Corp)

● List the individual responsible for the company, along with their tax ID (usually a Social Security number but might be an Individual Tax Identification Number)

● Select the reason why the business requires an EIN

● Provide the number of employees working for you, or, if you plan to hire employees, give an estimate of how many you will bring onboard

● Make sure you’ve answered all questions in full

●     Review and proofread your EIN application

Lastly, submit your application and wait for a response. Once you have your tax ID number, it will open up other opportunities for your business.


When annual tax time arrives, many business owners struggle. One of the best ways to reduce stress is to stay on top of organizing tax records. Plan for taxes every month by saving receipts, organizing records, and any other proactive steps that apply to your type of business and its taxes. Come next tax season, the process will be far easier.

Written by Maurice Mallory