Small Business Tax Returns - 3 Critical Tax Mistakes You Don't Want To Make

Every year the IRS delays the processing of millions of income tax returns for the same reasons. Here's the scoop on three of the most common tax preparation blunders and how to avoid them.

By Wayne M Davies

Every year the IRS delays the processing of millions of income tax returns for the same reasons. Here’s the scoop on three of the most common tax preparation blunders and how to avoid them.

Mistake #1: Forgetting to sign the return. If you omit your signature, the IRS will not process the return. Instead, they’ll send it back. And if you are married filing jointly, both spouses must sign, and if one spouse signs but the other doesn’t, the IRS will treat such a return as invalid and return it. The solution: e-file your return and the signature issue disappears.

Mistake #2: Math errors. Simple calculation errors are also quite common. With the proliferation of tax prep computer software programs, you would think this problem would have gone away by now. But plenty of folks still do their return the old-fashion way (i.e. via pencil and paper), so if your one of those types, what can I say? I respect you, but must insist you consider spending a few dollars this year on to automate the process. Not only will you eliminate the likelihood of a math error, but you’ll save time and lots of it. Instead of spending 5, 10, 15 hours or more on your return, using a software program will cut that down to 2 or 3 hours.

Mistake #3: Missing forms. Perhaps this blunder is the most understandable of the three. After all, who isn’t overwhelmed by the mind-boggling number of forms you have to prepare for the typical small business income tax return?

The problem here has to do with the omission of the forms that support the main income tax form for your particular type of enterprise. What do I mean by “the main forms”? Sole proprietors file Schedule C; regular corporations use Form 1120 and S corporations use Form 1120S; partnerships prepare Form 1065. Those forms are not the issue. It’s all the other forms that feed numbers into those main forms that folks tend to forget. Let’s call these forms the “supporting forms.”

Here’s a quick review of the most common supporting forms:

Form 4562 is used to report depreciation expense, amortization expense and the Section 179 expense deduction. So if you purchase fixed assets such as computer equipment or office furniture, you must show the details of these purchases on Form 4562. This form is used by business entities of all types.

For sole proprietors, two other common supporting forms are Schedule SE and Form 8829. Schedule SE is use to calculate the hated self-employment tax and Form 8829 is for the home office deduction.

The point here is this: if you report an amount for depreciation expense or the Section 179 deduction for newly purchased equipment on Schedule C Line 13, then you better include Form 4562 with your return. If you take the home office deduction on line 30, be sure to include Form 8829. And if you have a profit on Schedule C Line 31 of at least $400, then you must also prepare Schedule SE. Using a software program will eliminate the possibility of forgetting these supporting forms and schedules.

Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit http://www.yousaveontaxes.com . Wayne M. Davies is author of 3 ebooks on tax reduction strategies for small business owners and the self-employed.