The Pros of Business Tax Filing

8 Tax Mistakes That Can Sink Your Small Business

What's up, everyone? Daymond John “The People’s Shark” here. Today, we're diving into a topic that's not as flashy as launching new products or negotiating big deals, but in many ways it's even more important- taxes. 

Look, I know talking taxes isn’t exactly the sexiest part of running a business. But trust me, it's crucial to get everything set up the right way. If you don’t you’ll have an incredible number of headaches to deal with and fires to put out – on top of all the other work you need to tackle as an entrepreneur running your business.

Back when I was building FUBU, I made some rookie mistakes with taxes. And I’m going to cover those mistakes so you don’t have to make the same mistakes I did. 

Fortunately, none of the mistakes that I made were big enough to cause serious damage to my business, but I can tell you I was definitely stressed about them. Oddly enough, it wasn’t because I knew I had done something wrong but since I was so uneducated on what I needed to do with taxes, I didn’t even know what I was missing or the questions I should be asking. 

And like a kid that was confused in class, I kept my head down and tried to ignore it all together. I focused on the areas of the business that I knew I excelled at and that I was uniquely able to do. 

So I guess the biggest mistake I made when it came to taxes was: Not getting a better understanding of it earlier. 

I wish there had been a service like Rocket Tax, from my friends at Rocket Lawyer, back then. With Rocket Tax, you get matched with a tax pro to help you quickly and easily file your business taxes, saving you time and helping you avoid errors. The best part is that if you sign up for a Rocket Legal+ membership, you’ll get half off your tax prep and filing! 
Alright, let’s dive into it because in this video I’m sharing my 8 tax mistakes that can sink your small business. So, get out a pen and paper because you are going to want to avoid all of these common missteps small business owners make when dealing with taxes.

Kicking off our list is Inaccurate Record-Keeping. I like to equate messy and disorganized finances to building a business on quicksand. Proper bookkeeping ensures every dollar in, and every dollar out, is accounted for. Failing to maintain accurate and organized financial records can lead to errors in tax calculations and potential discrepancies when filing taxes. Proper bookkeeping should be your baseline, especially when it comes to keeping Uncle Sam off your doorstep.

Now let’s discuss Missed Deductions and Credits. You work hard for your money. Don't leave any on the table. Remember the old saying “A dollar saved is a dollar earned.” Well that couldn’t be more true than in this situation. Stay in the know about all the breaks, deductions and credits you're entitled to. Otherwise, you could be paying higher taxes than you really need to.

Ok, moving on to Late or Incorrect Filing. Look, deadlines matter. File on time, and make sure your info is spot on. Otherwise, you're just giving away money in penalties and that's like shooting yourself in the foot. Penalties and interest charges can easily pile up. Keep it accurate, keep it on time. And if you’ve had issues doing this in the past, make sure you plan ahead and allocate time to make sure you aren’t scrambling at the last minute to meet the deadline.

Next on the list, Underestimating Estimated Taxes. For my self-employed warriors out there, listen up. Self-employed individuals and small business owners are typically required to pay estimated taxes quarterly. I get how Quarterly taxes can sneak up on you. But underestimating these payments can lead to penalties at the end of the year. So set reminders or do whatever you need to prioritize paying accurate quarterly taxes, because trust me, no one likes to get a big bill from the government. And what’s worse than that is if the money you need in order to pay that bill, has already been spent.
 
Next big tax mistake entrepreneurs make is Commingling Personal and Business Expenses. Mixing business with pleasure? Definitely not a good idea. You must keep them separate. Your business isn't a hobby, and mixing funds is a recipe for confusion. Also, it makes it incredibly difficult to track how the business is truly performing and to identify those deductible business expenses we just talked about. Keeping separate bank accounts and credit cards for business and personal use is a must.

Now, let’s get into Ignoring Sales Tax Obligations. Depending on the location and type of business you have, sales tax regulations may apply. Businesses that sell physical products or certain services typically need to pay sales tax. Neglecting to collect and remit sales tax properly can result in penalties and legal issues. Trust me – I empathize that dealing with Sales taxes can feel like you’re stuck in a maze. But it's your job to navigate it. Know your obligations and stay on top of them. Rocket Lawyer can help you here too, with tax lawyers who can answer your questions. Make sure to get it right from the start so you don’t have any surprise bills down the road.

Next up is Misclassification of Workers. Remember there are differences between employees and contractors or freelancers. At a high level, Employees have a formal, ongoing relationship with an employer, working under their direction with set hours and often receiving benefits. Freelancers, on the other hand, operate as independent contractors, providing services to clients with more autonomy over their work hours, location, and equipment, while handling their own employment taxes and benefits. And if you’re treating employees like contractors or vice versa - that's a tax ticking time bomb. It affects tax withholdings, Social Security, Medicare, unemployment taxes, and more. Make sure to get this right from the get-go. Get this wrong, and you're looking at a tax headache - or possibly an even bigger problem with penalties and fees. Know the difference and classify right.

Finally, trying to do it all yourself. Now, I get it. We're hustlers. We’re entrepreneurs. We can do anything we set our mind to. Right? Yes … but you also have to ask yourself at what cost. Entrepreneurship is a team sport. Just because you could try to do everything, doesn’t mean you should. Think of it this way - instead of spending all that time learning about taxes and actually working on your taxes, imagine if you put that time and energy towards other areas of your business where you have truly unique skills that no one else on your team can do.
 
I don’t know about you, but I started my business for a lot of reasons. I would stay up late thinking about how I was going to make an impact, how I wanted to put out a positive message for my community, and how I was going to support my family. I definitely didn’t start my business so I could deal with taxes. Chances are, you didn’t either.
 
Here’s the good news – this is where Rocket Tax™ comes in. It's the direct solution to get matched with a tax pro who knows their stuff and can help you avoid some of the mistakes we just talked about. They’ll even make sure you aren’t missing any credits or deductions and leaving money on the table. Plus, don’t forget you get half off tax prep and filing when you sign up for a Rocket Legal+ membership.
So, there you have it, folks. Don't let these tax mistakes sink your ship. Get matched with a tax pro and let Rocket Lawyer do your taxes, or save half off on tax prep and filing services when you sign up for a Rocket Legal+ membership.