Every year, thousands of small businesses file their taxes with good intentions only to discover they’ve made errors that cost them money, trigger audits, or delay refunds. Whether you run a small family-owned shop or a growing corporation, avoiding these common mistakes can make a major difference come tax season.
At Bayerkohler, Ltd. CPA, we’ve seen firsthand how small oversights can turn into big financial headaches. Here are the top mistakes businesses make and how to steer clear of them.
1. Misclassifying Employees and Contractors
One of the most common tax errors is incorrectly classifying workers. Treating a contractor as an employee (or vice versa) can lead to IRS penalties and back taxes.
Tip: Use IRS guidelines to determine control, independence, and relationship. When in doubt, consult your CPA before issuing a 1099 or W-2.
2. Mixing Personal and Business Expenses
Combining personal and business purchases may seem harmless, but it complicates recordkeeping and can invalidate deductions.
Tip: Maintain separate bank accounts and credit cards for your business to simplify accounting and prove legitimate expenses.
3. Missing Deductions and Credits
Many small businesses overlook valuable deductions such as home office expenses, equipment depreciation, and vehicle mileage.
Tip: Keep detailed records throughout the year. A CPA can help you identify and document every deduction you’re entitled to.
4. Failing to Make Quarterly Estimated Payments
The IRS requires most businesses to pay estimated taxes quarterly. Missing payments or underpaying can result in interest and penalties.
Tip: Plan your cash flow around quarterly deadlines: April, June, September, and January.
5. Waiting Until the Last Minute
Rushing through tax preparation increases the chance of errors and missed opportunities for deductions.
Tip: Stay proactive by reviewing your books monthly and working with your CPA year-round, not just in April.
Key Takeaways
- Separate personal and business finances.
- Keep accurate and current records.
- Plan ahead for quarterly payments.
- Consult a professional for classification and deduction guidance.
Conclusion
Avoiding these common tax return mistakes can save your business significant time and money. A proactive partnership with a CPA ensures compliance, maximizes deductions, and gives you peace of mind.
Bayerkohler, Ltd. CPA provides trusted business tax preparation and advisory services throughout Minnesota. Let us help you start your next tax year with confidence.
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