For small business owners, grasping an understanding of the myriad of tax rules that apply to your business is stressful, and mistakes can result in fines and penalties. Read below for some of the most common but avoidable small business tax mistakes.

Mixing Business and Personal Expenses

The IRS strictly enforces the rule that only legitimate business-related expenses can be deducted from your income for tax purposes. When one account is responsible for business and personal expenses, the IRS can get confused, and that can trigger an audit. The only way to guarantee that business and personal expenses remain separate is to have a separate business bank account and a separate business credit card. Taking this approach can also reduce the impact your business finances have on your personal credit score. And separating business and personal finances can also help safeguard your personal accounts should your business get sued.

Inadequate Recordkeeping and Organization

Small business owners generally pay estimated taxes after the end of each quarter, typically based on your income during that three-month time period. Even if your business isn’t required to pay quarterly estimated taxes, leaving taxes as a once-a-year task almost guarantees you’ll miss out on deductions you’re eligible for simply because you haven’t been tracking your spending along the way.

Be sure to establish a system that helps you track income and expenses, and adjust your cash flow with your bank and credit card statements every month. An effective bookkeeping system such as QuickBooks can help you manage your finances.

Neglecting to File or Send Correct Forms or Payments

Small businesses are responsible for filing different types of tax forms as well as sending forms like W-2s and 1099s directly to employees and freelance or independent contract workers. Payroll and accounting software can assist with set reminders to file the appropriate forms and make the appropriate payments all in a timely manner. To be on the safe side, you might have a tax advisor help sort through everything, and they can even set up an annual calendar for all your IRS due dates.

Taking the Wrong Deductions

The IRS requires that an expense be “ordinary and necessary” to your business in order qualify for a deduction. Taking the wrong deductions can trigger a red flag with the IRS, as can claiming deductions that seem out of proportion with your income or with what comparably-sized businesses in your industry are claiming. Keep in mind that if you continually show a loss instead of profit over several years by claiming more expenses than income, the IRS might declare your business a hobby, and you’ll lose the deductions altogether.

Underestimating and Underreporting

Many small businesses are required to make quarterly tax payments based on their estimated tax bill for the year. While you’re not expected to have it down to the dollar, you are expected to get pretty close. Missing the mark by a large margin could send a red flag to the IRS, and you could potentially face a penalty for minimizing the estimate and underpaying. If the IRS discovers a fraudulent intention, the fine can be as high as 75%, and you could face criminal tax fraud charges.