Summary of What This Blog Covers:
- Identifies the Top 10 Tax Mistakes Small Business Owners Make – Covers common errors like mixing personal and business expenses, filing the wrong forms, missing sales tax or franchise tax deadlines, and overlooking critical deductions that can reduce tax liability.
- Explains Why Each Mistake Matters and the Risks Involved – Provides clear reasoning behind why these missteps can lead to IRS penalties, interest charges, compliance issues, or missed opportunities for savings, especially for LLCs, S-corporations, and self-employed owners.
- Offers Practical, Actionable Solutions for Each Mistake – Recommends strategies like using QuickBooks Online, tracking expenses with cloud-based tools, electing S-corp status, making quarterly tax payments, and consulting with a certified public accountant to stay compliant and strategic.
- Promotes Proactive Tax Planning with Insogna CPA – Positions Insogna CPA as a trusted Austin-based firm that helps small businesses avoid tax pitfalls, leverage growth strategies like 1031 exchanges and FBAR filing, and turn taxes into a long-term competitive advantage.
Running a business is one of the most rewarding things you can do but let’s not sugarcoat it: it’s also one of the most complex. Between managing cash flow, keeping customers happy, and scaling your operation, tax strategy is often an afterthought until it becomes a problem.
Sound familiar?
You’re not alone. Over the years, we’ve worked with hundreds of small business owners across Austin and we’ve seen firsthand how easily even the most capable entrepreneurs can get tripped up by taxes. The truth is, tax compliance and strategy aren’t just about filing forms. They’re about protecting your cash, avoiding penalties, maximizing deductions, and building a framework that supports your long-term growth.
So today, we’re breaking down the 10 most common tax mistakes small business owners make and what you can do to avoid them.
1. Mixing Business and Personal Expenses
It’s one of the most common mistakes we see especially in the early stages of a business. When you’re just starting out, it may seem harmless to charge business meals or subscriptions to your personal card. But this habit causes more harm than good.
Why It Matters:
- It complicates your books and can lead to missed deductions.
- It weakens the legal protections provided by your LLC or corporation.
- It increases your audit risk by creating a paper trail the IRS might question.
What to Do:
Set up a dedicated business checking account and credit card. Use cloud-based tools like QuickBooks Online, FreshBooks, ZohoBooks, or WaveApps to categorize and track expenses. A clean set of books is the foundation of a smart tax strategy and an easier life.
And yes, if your records are already messy, we can help untangle them. It’s what we do.
2. Misunderstanding Sales Tax Requirements
Sales tax can be deceptively complicated. You might think that because you sell digital products or operate mainly in one state, you’re in the clear. But thanks to economic nexus laws, even a few online sales in another state could trigger sales tax obligations.
Common Mistakes:
- Not collecting sales tax when legally required.
- Registering in the wrong state or not registering at all.
- Filing incorrect sales tax returns.
Why It Matters:
States are cracking down on small businesses that fail to comply with their rules. Getting caught can mean penalties, interest, and back taxes you weren’t budgeting for.
What to Do:
Work with a taxation accountant or CPA firm that understands your industry and geographic reach. We can help you understand your nexus exposure and handle your sales tax registration and filings, whether you’re dealing with Texas sales tax, digital products, or physical goods shipped nationwide.
3. Missing Franchise Tax Deadlines in Texas
If your business is located in Texas (or registered here), you’re required to file an annual Texas Franchise Tax report, regardless of whether or not you owe tax.
Why It Matters:
Missing this deadline can result in:
- Penalties and interest
- The forfeiture of your business’s right to operate
- Legal and financial complications that ripple into your bank accounts and contracts
What to Do:
We’ll help you file your Franchise Tax Report (Form 05-102) on time every year. Better yet, we’ll automate the reminders so you never fall behind again. If you’re not sure whether your entity type requires it, we can clarify that too.
4. Overlooking Eligible Tax Deductions
If you’re not tracking deductions properly, you’re almost certainly overpaying your taxes. Many business owners miss key write-offs simply because they didn’t document them or didn’t know they qualified.
Commonly Overlooked Deductions:
- Home office expenses
- Software subscriptions and tech tools
- Health insurance premiums (for self-employed individuals)
- Marketing, advertising, and business development expenses
- Legal and professional services
- Charitable donations through the business (when structured properly)
What to Do:
Use modern accounting tools like QuickBooks Self-Employed, WaveApps, or ZohoBooks to automatically categorize expenses. And if you’re not sure what qualifies, we’ll help you design a deduction strategy customized for your business model.
5. Forgetting Quarterly Estimated Tax Payments
For many businesses structured as sole proprietorships, partnerships, or S-corporations, income flows through to the owner. That means you’re responsible for paying estimated taxes four times a year.
Why It Matters:
Miss a payment and the IRS may impose underpayment penalties plus daily compounding interest.
Key Dates:
- April 15
- June 15
- September 15
- January 15 (of the following year)
What to Do:
We’ll calculate your quarterly estimated tax liability using tools like the self-employment tax calculator, Form 1040-ES, and real-time financials. Then we’ll help you automate those payments so you never miss a deadline again.
6. Filing the Wrong Tax Forms
Your tax form depends on your business structure. Filing the wrong one can delay your return, trigger IRS inquiries, or even cause you to overpay.
Forms You Might Need:
- Form 1040 (Schedule C) – for sole proprietors
- Form 1065 – for partnerships
- Form 1120 – for C-corporations
- Form 1120-S – for S-corporations
- Form 2553 – to elect S-corporation status
- Form 1099 NEC, 1095 A, 1099 K, and Form 1099 R – depending on how you pay vendors and manage benefits
What to Do:
Let us assess your structure and ensure you’re using the right forms. Our team at Insogna CPA specializes in helping businesses file everything from 1099 tax forms to capital gains reports and FBAR filings.
7. Overpaying Self-Employment Tax
If you’re a sole proprietor or LLC member, you’re paying 15.3% self-employment tax on every dollar of net income. Electing S-corporation status could cut that bill significantly.
How It Works:
- You pay yourself a reasonable salary, subject to payroll tax.
- Remaining profits are taken as distributions, not subject to self-employment tax.
- You’ll need to file Form 2553 to elect S-corp status.
What to Do:
We run the numbers for you. If it makes sense, we handle the election process and help you set up compliant payroll using tools integrated with QuickBooks Online Accountant or your chosen payroll provider.
8. Relying on Outdated Bookkeeping
If you’re still using spreadsheets, you’re not just behind the times, you’re risking serious errors. Manual tracking often leads to:
- Duplicate entries
- Missed income
- Inaccurate reporting
What to Do:
Upgrade to cloud-based solutions like QuickBooks Online, WaveApps, or Zohobooks. Need help migrating and setting up your chart of accounts? We’ve done it hundreds of times.
Bonus: These tools streamline your reporting for W-2 and W-9 forms, 1099 NEC, account payable and receivable, and help with bookkeeping services near me searches that don’t always yield the best results.
9. Relying on DIY Tax Software for Complex Returns
TurboTax Free, TaxAct, or TaxFreeUSA might work for personal returns, but small businesses come with added complexity. You need to understand depreciation, inventory, 1099c, 1040 tax form, Form 1065, and so much more.
What to Do:
Work with a CPA certified public accountant or chartered professional accountant who understands your entire financial picture, not just what happened last year. We don’t just file returns; we design proactive, customized strategies.
10. Not Planning for Growth
As your business grows, so do your tax filing responsibilities, reporting needs, and strategy considerations. Waiting until tax season to think about this is a missed opportunity.
Signs You’ve Outgrown Your Current Tax Plan:
- You’re hiring employees across state lines.
- You’re buying commercial property (and need a 1031 exchange plan).
- You’re investing or selling assets with short-term capital gains tax
- You’ve expanded internationally (and now require FBAR filing).
- You’re scaling past 7 figures.
What to Do:
Insogna CPA goes beyond tax prep. We build tax-forward strategies aligned with your long-term goals, lifestyle, and business structure.
Let’s Take the Stress Out of Taxes
At Insogna CPA, we serve small business owners across Austin, Round Rock, and beyond, offering full-service tax, accounting, and advisory support. Whether you’re looking for help with:
- Tax services near me
- Bookkeeping services
- Franchise tax
- 1040 ES planning
- QuickBooks help
- Jackson Hewitt near me alternatives
—we’ve got you covered.
Let’s build a smarter tax plan together. One that scales with your business, saves you money, and gives you the confidence to grow without worry.
Let’s make taxes your competitive advantage. Not your pain point.