The IRS officially started accepting returns as of January 27, setting off a flurry of activity for businesses, payroll teams, and tax professionals. With the IRS expecting to process over 140 million individual tax returns by the federal deadline, the next few months will be a race against the clock for businesses across the country.
A single mistake, whether it’s a misclassified worker, an incorrect TIN, or a missed deadline, can lead to penalties, rejected returns and, in worst cases, an audit. Yet, year after year, many businesses make the same costly mistakes, from failing to track expenses properly to overlooking state-specific tax obligations.
So, as the busiest time of the year begins, is your business prepared to avoid these common tax filing mistakes?
Missing IRS Deadlines
One of the most common—and costly—tax season mistakes businesses make is failing to file tax forms on time. The IRS imposes strict deadlines for filing various tax forms, and missing these due dates can lead to hefty penalties, interest charges, and increased scrutiny from tax authorities. The penalties for missing tax deadlines vary depending on the type of form and the length of the delay. For example, failing to file Form 1099 on time can result in penalties ranging from $60 to $630 per form, depending on how late the submission is.
Staying organized is crucial to meeting deadlines. Creating a tax calendar with all key filing dates and automating reminders using accounting software can keep you on track. In some cases, outsourcing tax preparation to professionals can be a valuable investment to ensure timely compliance.
Incorrect TIN and Name Combinations
Missing or incorrect Taxpayer Identification Numbers (TINs) and/ or recipient names are among the most frequent mistakes businesses make during tax season. These details are essential for matching information with IRS records, and even minor discrepancies can result in rejected filings or penalties. This issue often arises from outdated records, typos, or failure to verify data with employees or vendors.
So, how can businesses steer clear of TIN troubles? Start by making record validation a routine practice. While the IRS offers free TIN matching services, going the extra mile with real-time and bulk TINCheck services can help ensure your records stay accurate and up to date. Think of it as a proactive investment in peace of mind—saving time, money, and frustration down the line. Try TINCheck for Free Today
Misclassifying Workers
Misclassifying employees as independent contractors—or vice versa—is a major error that can result in significant IRS penalties and back taxes. To properly distinguish between W-2 employees and 1099-NEC contractors, businesses must consider evidence across three key categories: behavioral control, financial control and the degree of independence.
| Category | Key Questions | Considerations |
| Behavioral | Does the business control what the worker does and how tasks are performed? | – Oversight of schedules, work methods, and daily responsibilities. |
| Financial | Does the business control the financial aspects of the worker’s role?
Who is responsible for providing tools, equipment, and other necessary resources? |
– Payment structure (e.g., hourly, salaried, per project).
– Expense reimbursement |
| Relationship | Are there written contracts or agreements outlining the relationship?
Is the relationship ongoing? Is the work performed an essential part of the business’s operations? |
– Written contracts or agreements.
– Benefits such as insurance, pension plans, or vacation pay. |
Remember, all relevant factors must be assessed making this determination, as there’s no “magic” formula behind the classification. If unsure, file Form SS-8 with the IRS for clarification. Additionally, ensuring HR and accounting teams understand worker classification rules before onboarding employees and contractors can also help prevent misclassification issues.
Filing the Wrong Form
Tax forms are not one-size-fits all. While employee wages are simply reported using Form W-2, there are many other forms used to report various types of payments. For example:
- If you paid at least $600 during the year to a non-employee for services (including parts and materials), you must file Form 1099-NEC. Payments to attorneys and cash payments for certain industries, like fishing, also require this form.
- If your business reports royalties, rents, prizes and awards or other miscellaneous income, you must use Form 1099-MISC.
- If your business reports wages of full or part-time employees, you must use Form W-2.
Mailing Instead of E-Filing
The IRS now mandates that businesses filing 10 or more tax forms must electronically file instead of mailing paper forms. This rule, designed to reduce errors and improve processing efficiency, means that businesses still relying on traditional mail submissions risk compliance issues, processing delays, and potential penalties.
Beyond compliance, e-filing provides a higher level of security than mailing tax documents. Paper forms containing sensitive business and employee information can be lost in transit, damaged, or intercepted. In contrast, electronic filing ensures a secure and encrypted transmission of tax data, reducing the risk of identity theft and fraud.
If you’re confused by the eFile process or don’t know where to start, platforms like eFilemyforms make e-filing easy and accessible, even for those new to the process. You’ll get instant confirmation of receipt, avoid lost forms, and ensure compliance with IRS regulations.
Ignoring State-Specific Requirements
For businesses operating across multiple states, navigating the patchwork of tax requirements can be overwhelming. One of the biggest challenges is that state tax laws are not uniform. Some states have corporate income taxes, while others rely on gross receipts taxes, franchise taxes, or sales taxes. In addition, payroll tax obligations and withholding requirements differ from state to state, meaning businesses with employees in multiple states must constantly track regulations to stay compliant.
To avoid costly mistakes, consider working with a reputable tax advisor and/ or using a platform that supports multi-state filing. Sovos actively tracks direct state filing requirements to keep your business informed. Explore our interactive Direct State Reporting Map for the latest filing updates and guidelines. View the Map
Not Keeping Proper Expense Records
Many organizations either fail to track deductible business expenses or claim deductions without proper documentation, putting them at risk for an audit. The IRS requires businesses to keep detailed records of all deductible expenses, including receipts, invoices, and mileage logs. Failing to accurately track expenses throughout the year can result in missed deductions, which means businesses may end up paying more in taxes than necessary.
All companies should implement a structured approach to expense tracking. Keep all receipts, invoices, and business-related financial documents in a secure, easily accessible system. Only claim expenses that are ordinary and necessary for your business. Misreporting or overstating deductions can raise red flags and increase the likelihood of an IRS audit.
Your Business’s Secret Weapon for a Stress-Free Tax Season
The good news is that many of these costly errors can be avoided with the right tools and strategies. Technology is your greatest ally. By leveraging automation, real-time data validation, and integrated tax solutions, businesses can reduce manual workloads, avoid costly penalties, and stay ahead of evolving tax regulations.
Whether it’s using e-filing platforms to meet IRS requirements, TIN-matching services to prevent rejections, or tax compliance software to track deadlines and multi-state obligations, investing in the right technology can make all the difference. Meet with an expert today to uncover the right solutions for your business.