Avoid These Common Small Business Tax Mistakes That Cost You Money

Running a small business in San Antonio comes with enough challenges—tax penalties shouldn’t be one of them. Yet, every year, business owners unknowingly make simple tax mistakes that cost them money, time, and peace of mind. Whether you’re preparing for an upcoming filing deadline or catching up from a missed one, understanding these common tax pitfalls can help you avoid costly errors.

Below are the most frequent small business tax mistakes—and how to avoid them.

1. Poor Record keeping Throughout the Year

One of the top reasons businesses run into tax trouble is a lack of consistent, organized financial records. When receipts pile up in drawers, invoices go untracked, and income isn’t properly logged, it creates a ripple effect that makes accurate tax filing nearly impossible.

Missed or untracked expenses can cost you hundreds or even thousands in deductions. Incorrect income totals could lead to underreporting—which the IRS sees as a red flag—and if you’re ever audited, sloppy records won’t hold up under scrutiny.

How to avoid it:Invest in bookkeeping software that syncs with your bank accounts or work with a professional who tracks everything from income and expenses to mileage and business receipts. The earlier in the year you get this system in place, the easier tax time will be.

2. Mixing Personal and Business Finances

Many business owners—especially in the early stages—use personal bank accounts or credit cards to pay for business expenses. While it may seem convenient, mixing personal and business finances creates serious problems when it’s time to prepare taxes. It becomes difficult to identify legitimate deductions, and the IRS may challenge expenses if they can’t clearly be tied to the business.

Beyond tax season, having co-mingled finances also makes it harder to understand how profitable your business really is and can hurt your credibility with banks, lenders, or potential investors.

How to avoid it:Open a separate bank account in your business’s name and apply for a dedicated business credit card. This helps you keep a clean paper trail and makes bookkeeping far easier. Treat your business like a business from day one—it pays off.

3. Misclassifying Employees and Contractors

Worker classification is a common area of confusion—and one the IRS takes seriously. Business owners often label someone as a contractor to avoid payroll taxes, but if that person functions like an employee, it can result in back taxes, penalties, and interest.

Employees (W-2 workers) require payroll tax withholding, unemployment insurance, and other benefits, while independent contractors (1099 workers) are responsible for their own taxes. Misclassifying employees as contractors is one of the most costly errors you can make.

How to avoid it:If you’re unsure how to classify a worker, don’t guess. Talk to a tax advisor who can help you assess whether someone meets the IRS’s criteria for contractor status. Getting this wrong can trigger audits and payroll tax liabilities for prior years.

4. Failing to Make Estimated Tax Payments

If your business earns income that isn’t subject to withholding—like most sole proprietorships, S-corporations, and partnerships—you’re expected to make quarterly estimated tax payments. Many business owners forget or don’t realize this requirement exists, only to be hit with underpayment penalties when they file their return.

Missing these payments not only leads to penalties but can also leave you facing a large lump-sum tax bill in April that’s tough to pay all at once.

How to avoid it:Meet with your tax professional early in the year to calculate how much you should be paying quarterly. These payments are usually due in April, June, September, and January. Setting aside money regularly ensures you're not caught off guard later.

5. Missing Deadlines or Filing Incorrectly

A missed tax deadline can be costly—especially for corporations and partnerships. Late filing penalties can be as high as 5% per month of unpaid taxes, and in the case of partnerships and S-corps, the IRS may assess $220 per partner or shareholder per month, even if no taxes are due.

In addition to missing deadlines, filing with incomplete or incorrect information can result in audits, delays in processing, and additional penalties.

How to avoid it:Mark important tax deadlines on your calendar and start preparing at least a month in advance. If you're feeling overwhelmed, it’s worth working with a professional who can ensure your return is accurate and filed on time. Rushing at the last minute increases the risk of errors—and the cost of fixing them.

Bonus: Forgetting About Local & State Taxes in Texas

While Texas doesn’t impose a state income tax, that doesn’t mean your business is off the hook for local obligations. Many small business owners forget to account for Texas franchise taxes, sales tax reporting, or employment tax requirements—which can result in penalties or the suspension of your right to do business.

How to avoid it:Make sure you're registered with the Texas Comptroller of Public Accounts and understand what’s required based on your business structure and industry. Staying compliant at all levels—federal, state, and local—is key to keeping your business in good standing.

Need Help Keeping Your Business on Track?

Whether you’ve already made one of these mistakes or want to prevent them going forward, The RedHead Solutions is here to help. We specialize in helping San Antonio small businesses clean up their books, file accurately, and stay compliant—year-round.

We’ll help you:

• Catch up on past filings

• Set up clean, organized bookkeeping systems

• Stay ahead of IRS deadlines

• Maximize deductions and reduce tax liability

If your taxes feel like a mess, you don’t have to fix it alone. Reach out to The RedHead Solutions today and get expert support that works for your business.