Tax season can be stressful for small business owners and freelancers, but it doesn’t have to be. While no one looks forward to filing taxes (except maybe your accountant), avoiding these seven common mistakes can help make tax season much smoother. With the 2025 tax deadline approaching, now is the time to get prepared.

1. Filing through the wrong form of business

Before you file your taxes, it’s crucial to make sure you’re using the right business structure. Your business type determines what forms you’ll need, how much you’ll pay in taxes, and whether your profits are taxed at the business level or passed through to your personal return.

Here’s a breakdown of the most common business structures and what to expect at tax time.

Sole Proprietorship

A sole proprietorship is the simplest and most common business structure for solo entrepreneurs. It’s easy to set up, and your business income is reported directly on your personal tax return—no separate business tax filing required. However, you’re personally responsible for all debts and liabilities.

A sole proprietorship might be right for you if:

  • You’re the only owner of the business.
  • You want full control over financial decisions.
  • You prefer a simple tax filing process.

Tax Forms You’ll Need:

2025 Update: The IRS now requires most freelancers and small businesses to file Form 1099-NEC electronically if issuing more than 10 forms.

Partnership

A partnership is when two or more people own a business together. Unlike corporations, partnerships don’t pay taxes at the business level — profits and losses “pass through” to the partners’ individual tax returns.

A partnership might be right for you if:

  • You’re starting a business with one or more partners.
  • You want to share startup costs and financial responsibilities.
  • You’re comfortable being personally responsible for your partner’s financial decisions.

Tax Forms You’ll Need:

  • Form 1065: Reports the partnership’s income and expenses.
  • Schedule K-1 (Form 1065): Sent to each partner to report their share of income on their personal return.
  • Form 1040: Used by each partner to file their personal income taxes.

 2025 Update: The IRS now requires partnerships with more than 100 partners to file their returns electronically.

S Corporation (S Corp)

An S Corp is a tax election that allows businesses to avoid double taxation—profits pass through to owners, who report them on their personal tax returns. However, owners who work for the business must pay themselves a “reasonable salary” subject to payroll taxes.

An S Corp might be right for you if:

  • You want to avoid corporate-level taxation.
  • You want to reduce your self-employment tax burden.
  • Your business has fewer than 100 shareholders (all must be U.S. citizens or residents).

Tax Forms You’ll Need:

  • Form 2553: To elect S Corp status (must be filed within 2 months and 15 days of the start of the tax year).
  • Form 1120S: The S Corp’s income tax return.
  • Schedule K-1 (Form 1120S):  Reports each shareholder’s share of business income.

2025 Update: The IRS is increasing scrutiny on S Corps that pay low salaries to owners to reduce payroll taxes — be sure your salary is “reasonable” based on industry standards.

Limited Liability Company (LLC)

An LLC combines the liability protection of a corporation with the flexibility of a sole proprietorship or partnership. By default, a single-member LLC is taxed like a sole proprietorship, while a multi-member LLC is taxed like a partnership. However, LLCs can elect to be taxed as an S Corp or C Corp for different tax benefits.

An LLC might be right for you if:

  • You want liability protection without the complexity of a corporation.
  • You want flexibility in how profits are distributed.
  • You’re okay with paying self-employment taxes on all profits (unless electing S Corp taxation).

Tax Forms You’ll Need:

Single-Member LLC (default):

  • Form 1040 + Schedule C – Reports business income and expenses.

Multi-Member LLC (default partnership taxation):

  • Form 1065 – Reports business income.
  • Schedule K-1 (Form 1065) – Reports each owner’s share of income.

LLC taxed as an S Corp:

  • Form 1120S – S Corp tax return.
  • Schedule K-1 (Form 1120S) – Shareholder income report.

LLC taxed as a C Corp:

  • Form 1120 – Standard corporate tax return.

2025 Update: LLCs electing S Corp status must submit payroll tax filings and ensure owners receive a reasonable salary. Multi-member LLCs with foreign owners must now file additional reporting forms for IRS compliance.

2. Not gathering basic information before filing

When it comes to doing right by your business, the worst thing you can do is get sloppy when it comes to taxes. Before you file your taxes, take the time to make sure you’ve got all the basic information you need. 

The easiest way to limit stress around tax time is by prioritizing your financial health throughout the year. If you commit to staying on top of your finances year round, you’ll have everything you need on hand and won’t have to scramble to gather basic information at the last minute.

This will include:

  • SSN 
  • receipts
  • sales records
  • returns and allowances
  • business checking and savings accounts
  • inventory (purchases, ending inventory, costs of materials and supplies)
  • additional expenses (business trips, travel, etc)
  • wages paid to employees

3. Lumping business and personal expenses together

Part of effectively managing your business is making sure your business and personal expenses are kept separate. Failing to do this can cause errors in your bookkeeping and create larger, more complicated organizational tasks when tax time comes along. 

The easiest way to keep business and personal expenses separate is by using a dedicated business bank account. Many business banks in 2025, like North One, offer real-time transaction categorization and virtual cards to streamline expense management. Digital bookkeeping integrations can also automatically separate business spending, saving you time and ensuring accurate financial records.



4. Missing out on business deductions

Running a business is not cheap and often requires you to take risks financially. Don’t cheat yourself out of tax deductions you are legally owed. The more you can deduct, the less you will pay in taxes and this money can go right back into your business. The IRS released the most common tax deductions for small businesses and sole proprietors. Some common deductions include;

  • Cars and trucks
  • Salary and wages
  • Contracted labor
  • Supplies
  • Rent on business property
  • Home office
  • Travel
  • Advertising
  • Legal fees

These are some of the most common deductions, but it is not an exhaustive list. If one of your business’s expenses is not listed above, you can always find out if it is deductible by visiting the IRS website.

5. Neglecting bookkeeping until tax season

The best way to limit stress when it comes to tax season is by keeping your thumb on bookkeeping throughout the year. If you don’t feel confident about staying on top of your business’s books, it might be a good idea to hire a bookkeeper. Take the time to hire someone who is good at what they do and won’t cause more problems for your business.

In 2025, AI-powered accounting tools and real-time bank integrations make it easier to maintain accurate records throughout the year. Automated bookkeeping software can categorize expenses, flag tax-deductible transactions, and generate tax-ready reports — eliminating the need for last-minute paperwork.

6. Choosing not to file business taxes online

In 2025, e-filing is not just a convenience—it’s a necessity. The IRS processes online returns faster, reducing the chance of errors and speeding up refunds. Modern tax software uses AI to flag potential mistakes before filing, and business banking integrations make it easier to import financial data directly into tax returns. If you’re still filing taxes manually, you could be missing out on efficiency, accuracy, and potential savings.

7. Skipping proofreading

One mistake even the best business owners make when it comes to doing their taxes, is not taking the time to proofread the forms they are submitting.

Even small errors — like a mistyped SSN or a misclassified expense — can lead to tax delays or penalties. In 2025, AI-powered tax filing software can automatically detect inconsistencies and alert you before submission. Double-checking your return with both automated tools and a manual review ensures accuracy and prevents costly mistakes.