We recently lifted our heads above the water after swimming through a sea of client files, getting everything ready to send off to their CPAs for tax filing. All year long, but especially in the thick of tax season, we’re submerged in numbers, receipts, and reconciliations – and we start to spot patterns. Certain questions come up again and again, and we notice some commonly missed deductions and compliance issues.
To help you stay ahead of the curve (and out of hot water with the IRS), we’ve rounded up five of the most frequent tax pitfalls we see – along with tips to avoid them.
1. Meals & Entertainment Deduction
This one can be confusing for a couple of reasons: the tax law has changed – and changed back again – over the past few years, and deductions are not always “all or nothing.” Expenses in this category are either 100% deductible, 50% deductible, or 0% deductible, examples of which we’ll see below.
100% Deductible
- Company holiday parties or company picnics
- “Open house” events/meals for the public, usually for advertising purposes
50% Deductible
- Food for business/board meetings
- Meals with clients, customers, or vendors that will benefit the business
- Employee meals while traveling
- Meals during a seminar or convention
- Snacks/meals for employees at the office
Not Deductible
- Client entertainment expenses – like concert tickets, golf games, sporting events, etc.
Common Issue: Misclassifying meals and claiming a full deduction when only a partial or no deduction is allowed.
2. Contractors vs Employees
It’s important to determine whether the individuals providing services to your business are classified as independent contractors or employees. If someone is incorrectly classified as a contractor instead of an employee, a company may be liable for employment taxes, back wages, unemployment insurance and workers comp claims, and other penalties and lawsuits.
This IRS publication details how to determine whether someone is an employee or an independent contractor, including industry-specific examples given for clarification. We’ll touch on some of the key differences below.
Contractors
- Typically operate as a sole proprietor or business owner
- Set their own schedule and work independently
- Use their own tools, computer, equipment, etc.
- Paid via invoices and receive Form 1099
- Pay their own self-employment taxes
Employees
- Schedule is set by the employer
- Often receive benefits such as health insurance, vacation, etc.
- Paid through payroll and receive Form W-2
- Payroll taxes (federal and state income taxes; social security, Medicare and unemployment taxes) are withheld and remitted by the employer
Common Issue: Treating workers as contractors to avoid payroll taxes—beware, as the IRS frequently flags this.
3. Mileage Log & Vehicle Use
All of the ownership and operating costs may be deducted if you have a vehicle used exclusively for business purposes. If you sometimes use your business vehicle for personal purposes, you may take only a partial deduction: all of the costs would run through the business and then a portion of that – based on percentage of personal usage – would be added to the owner’s income as either a distribution or payroll benefits addition, depending on the structure of the entity.
For a partial deduction, you can choose between the actual expense method or the standard mileage rate. The best option for you often depends on how many miles you drive and how costly your vehicle is to maintain.
Actual Expenses
To use this method, add up all of the costs associated with your vehicle – like gas, insurance and maintenance (save those receipts!). Decide what portion of your mileage is used for business purposes, and multiply the total costs by that percentage.
Standard Mileage Rate
For the standard mileage rate, keep a log of the miles you drive for business purposes throughout the year. Multiply the total of those miles by the standard mileage rate ($0.70/mile for 2025).
Common Issue: Not keeping a log, or mixing personal and business miles without documentation.
4. Mixing Business & Personal Expenses
In addition to vehicle expenses and mileage, there are other categories that may blur the line between business and personal expenses. Common examples include your cell phone bill, where only a portion may be used for work; internet service, especially if you work from home; travel, where a mix of business meetings and personal time can complicate what’s deductible; and even meals, when you’re dining with both business contacts and friends. It’s important to separate the business portion of these expenses and document them clearly—otherwise, you risk either missing out on legitimate deductions or claiming more than the IRS allows.
We recommend that our clients keep separate business bank accounts and credit cards – and remember to use the correct card when making a purchase! It’s also important to hold onto receipts from mixed-use expenses to clearly separate the business portion from personal.
Common Issue: Deducting entire amount of personal items, or not allocating expenses properly between business and personal expenses.
5. Poor Bookkeeping & Missed Estimated Payments
Bookkeeping
You already know what we’re going to say: keep your bookkeeping current! Waiting until tax time to scramble and get your prior year’s numbers up to date is stressful, time-consuming, and increases the likelihood of missed deductions or errors. And if you don’t have the time to update the numbers yourself, you may be looking at added accountant fees for last-minute clean-up. It’s also nearly impossible to measure metrics and make informed financial decisions during the year when your financial records aren’t up to date.
Estimated Tax Payments
Regularly tracking your income and expenses helps you to know what you owe and when to pay it. If you’re self-employed or own a business, the IRS expects you to make estimated tax payments – paying taxes quarterly, not just at year-end. (Check out this blog post for a deep dive into this topic.) Failing to make these payments can lead to underpayment penalties, even if you pay in full when you file. Many business owners don’t realize this until it’s too late. Staying on top of your numbers throughout the year makes it much easier to calculate and send in those quarterly payments on time—and avoid unpleasant surprises in April.
Common Issue: Waiting until tax time to get your prior year’s numbers up to date. Possibly having to pay penalties if no estimated taxes were paid throughout the prior year.
We know that when you’re neck deep in the day-to-day of running your business, it’s easy for tax details to sink to the bottom of the priority list. But the longer they stay there, the more overwhelming things can feel – especially when deadlines hit. Spotting these issues early can save you time, stress, and money down the line.
If you’re feeling underwater with your bookkeeping or unsure about what deductions you can take, let’s talk. We’re here to help you stay afloat, get organized, and make tax time next year a lot less stressful!