Taxes Archives

The 10 Most Common Tax Mistakes Business Owners Make (and How to Avoid Them)

With S corporation tax returns due March 15 and personal returns due April 15, this time of year can sneak up on even the most organized business owners. And while most of us aren’t trying to outsmart the IRS, you’d be surprised how many smart people make the same avoidable mistakes year after year.

Here are 10 of the most common tax mistakes I’ve seen—and how to steer clear of them.

1. Mixing personal and business expenses
The mistake: Charging personal expenses to a business card or vice versa.
The fix: Keep clean books and use separate accounts. It’s a red flag for auditors and a mess for your CPA.

2. Missing S-corp deadlines
The mistake: Forgetting the March 15 S-corp filing date and assuming it’s the same as the personal return deadline.
The fix: Set calendar reminders in January and work with your accountant to prep early. If needed, file an extension—but don’t wait until the last minute.

3. Not paying yourself a “reasonable salary” as an S-corp owner
The mistake: Taking distributions only, without running payroll.
The fix: The IRS expects S-corp owners to pay themselves a fair wage before taking profits. It reduces your audit risk and keeps things compliant.

4. Overlooking estimated tax payments
The mistake: Failing to make quarterly payments—especially common for new business owners.
The fix: Ask your accountant to calculate your estimated payments and automate them if possible. The penalties for underpayment are annoying and avoidable.

5. Missing deductions
The mistake: Forgetting to deduct things like home office space, mileage, or business travel.
The fix: Track expenses all year (apps help), and ask your CPA what’s commonly missed. Don’t leave money on the table.

6. Taking too many deductions
The mistake: Getting overly aggressive—writing off your dog as a “security system” or claiming 100% of your vehicle use as business.
The fix: Be reasonable. If it feels like a stretch, it probably is. The IRS has a good nose for this.

7. Failing to issue 1099s
The mistake: Not sending 1099s to contractors by the January 31 deadline.
The fix: Keep track of vendors throughout the year. If you pay someone $600+ who’s not on payroll, chances are you owe them a 1099.

8. Not saving for the tax bill
The mistake: Spending everything you earn and then panicking in April.
The fix: Treat taxes like a recurring bill. Set aside a percentage of income each month so you’re not scrambling when the IRS knocks.

9. Relying on software instead of strategy
The mistake: Letting TurboTax do your thinking.
The fix: Tax software is great for simple returns. But as a business owner, strategy matters more. A good CPA pays for themselves by helping you plan—not just file.

10. Not asking questions
The mistake: Assuming your accountant has it all covered without any dialogue.
The fix: Don’t be afraid to ask. A 10-minute conversation can prevent a costly mistake. It’s your money—and your responsibility.

Final thought:
Most tax mistakes come down to one thing: waiting too long to think about taxes. A little planning and communication—now, not next month—can save you stress, penalties, and money.

Don’t Judge Entrepreneurship by # of Small Companies

A recent article in The Economist had some interesting information on entrepreneurs based on a paper Small Business Activity Does Not Measure Entreprenurship by Magnus Henrekson and Tino Sanandaji:

“… the number of self-made billionaires a country produces provides a much better measure of its entrepreneurial vigour than the number of small businesses.”
There’s a negative correlation between the density of billionaires who’ve built innovative business per capita and the rates of small-business owners, self-employment and startups (i.e. measuring a country’s entrepreneurship by the # of small companies is way off)
3/4 of all folks who start companies want to keep them small enough to manage themselves
A high tax environment encourages “copycat” entrepreneurs vs. entrepreneurs that truly innovate

Effective Public Engagement – Look for Convergence, Create Awareness

This is the last post in my series on Fighting a Government Threat. My 8^th lesson, Don’t assume that your counterpart thinks the way you do or is influenced by the same consideration, is underscored in the Harvard Business Review case study on this topic. Author Michael Hartman notes, “Especially when dealing with government entities, it’s important to carefully evaluate what factors are likely to affect their decision making. Will an article in the newspaper sway the governor? Or is he more apt to be persuaded by constituents, such as the company’s employees?”

While you most likely will think about an issue differently, it still is possible to (lesson #9) find points of convergence and show empathy for the goals of the Governor or legislators with whom you have a disagreement.

In the recent B2B tax proposal, the Governor’s good intentions and desire to generate more money to fund them offered little in the way of a solid, viable plan. I was careful to explain that I share the Governor’s love of our state and the many benefits it offers. I hoped that by noting our shared commitment to the state, he would be more open to hearing my thoughts on why I disagreed with his B2B proposal.

Finally, lesson #10: Build a positive relationship with the news media over time. I have spent the better part of the past two decades building relationships with the local business news community. Working with a publicist has helped, but at the end of the day I have agreed to participate in almost every request for an interview that has come my way.

Building relationships with the press takes time, but this credibility pays huge dividends when you want to speak out on an important issue. If reporters and editors already know you are a credible businessperson from past interactions, they are more likely to seek you out for quotes and consider your OpEd submissions for publication.

Effective Public Engagement – Engage, Speak, and Be Practical

When a political proposal threatens your business, it is in the best interests of you and your employees to speak up in a public way. Hence, lesson #4: Engage your employees in the public debate as much as possible. We found this to be an effective technique when the Governor was pushing a proposal to tax business-to-business services recently.

Intertech employees were provided with factual information about the issue and a tool for identifying their local representatives in the State Legislature. I also gave them a copy of my Star Tribune OpEd and encouraged them to send it to their local representatives with a personal note.

Many employees chose to engage on this issue, which resulted in an invitation to join a group of business leaders to meet with the Governor and selected state reps about the issue. We would not have been at the table without our proactive work with employees around this issue.

Thus, lesson #5: Don’t be afraid to take a position and speak out about it.

For some business people, it feels uncomfortable to get involved in a political discussion or debate. After all, we’re used to running our businesses not making governmental decisions. But the business community is a major stakeholder and decisions that impact our livelihood and the livelihoods of our employees deserve our time and attention.

But don’t go ballistic and (lesson #6), Don’t make idle threats. In the B2B debate, I was careful not to threaten relocating Intertech to another state. I did, however, describe the lobbying efforts of other states to lure businesses such as mine to their lower-tax jurisdictions. In the HBR case study, the lesson is stated as “Never, ever make a threat you’re not willing to follow through on.” Why? “Hollow threats undermine a company’s credibility, and that’s hard to recover from.”

I also believe that making threats create an environment that is hostile and nonproductive. Much better to (lesson #7) offer reasonable ideas and counter proposals that both parties can live with. I genuinely believe the Governor when he says he loves Minnesota and wants to build a strong future by beefing up education at all levels. and early learning opportunities for young children.

However, offering a paltry tax rebate to property owners seemed like a strange way to achieve that objective. I was not shy about pointing this out in my OpEd. I also acknowledged that while I’m not a fan of higher personal income taxes, I understand that more revenue is needed and that probably has to happen in some capacity to keep our state on a positive future course.

By meeting the Governor half-way on this issue, I hoped to show that I am a reasonable business person and a sincere Minnesota resident who deserves to have my thoughts about the B2B proposal seriously considered. The HBR case study summarizes this lesson this way: “Always look for a solution both parties can live with, even if it is not optimal for either one.”

My next post, and the last in this series, will look closer at lessons #8-10 on Fighting a Government Threat.

It’s Back… Minnesota Reconsiders a B2B Tax on Consulting

According to yesterday’s Star Tribune, the Minnesota Legislature is reconsidering a tax on B2B custom computer software services… here’s an excerpt from the Star Tribune article:

“To make up for the lost revenue, those who buy… custom software… would pay … sales taxes”

I wrote an article when this was first being considered by the Governor entitled Taxing business services is bad for Minnesota. The principles in my OpEd are still accurate. If you live in Minnesota and agree this is a bad idea, let your legislators know by using this simple automated site to voice your concern (it takes less than a minute).