Starting a business in the United States is exciting, but the tax system can feel like a maze. Every year, millions of new entrepreneurs lose money, face penalties, or make avoidable mistakes simply because they don’t understand U.S. tax rules.

The good news?
Most of these mistakes are completely preventable with the right guidance.

Below are the top seven tax mistakes new U.S. business owners make—and exactly how you can avoid them.

1. Choosing the Wrong Business Structure

One of the biggest mistakes happens before you even start operating: choosing the wrong entity.

Your choice (LLC, S Corp, C Corp, Sole Proprietorship) affects:

• How much tax you pay

• How you pay yourself

• Your liability protection

• Your eligibility for deductions

• Multi-state filing requirements

• Your long-term growth strategy

Common errors include:

❌ Forming in the wrong state “because everyone uses Delaware”
❌ Choosing an LLC when an S Corp would save thousands
❌ Choosing a C Corp without understanding double taxation
❌ Operating without an Operating Agreement or Bylaws

How to avoid this mistake

Get an expert entity analysis before forming. A qualified advisor evaluates:

• Your business model

• Expected revenue

• Owner residency

• Payroll strategy

• Tax liability

• Long-term goals

The best structure is the one that minimizes taxes and maximizes flexibility for your situation.

2. Mixing Personal and Business Finances

Many new entrepreneurs skip this step—and pay for it later.

When you mix business and personal expenses:

• You lose audit protection

• You risk piercing the corporate veil

• You make bookkeeping a nightmare

• You reduce eligible deductions

• You create IRS red flags

How to avoid this mistake

• Open a dedicated business bank account

• Use a business debit/credit card

• Keep receipts organized

• Use simple bookkeeping software (QuickBooks, Wave, etc.)

This one step protects your liability and keeps the IRS happy.

3. Not Understanding Self-Employment Tax

Most new entrepreneurs don’t realize they owe an additional 15.3% self-employment tax on top of income tax.

This applies to:

• Single-member LLCs

• Sole proprietors

• Most freelancers and contractors (1099-NEC)

How to avoid this mistake

• Set aside 25–30% of your earnings for taxes

• Consider electing S Corp status once profit exceeds ~$40–50K

• Work with a tax professional to run payroll correctly

An S Corp election alone can save thousands per year—when done correctly.

4. Not Filing Quarterly Estimated Taxes

If you expect to owe more than $1,000 in taxes, you must pay quarterly estimates.

Failure results in:

• Penalties

• Interest

• Cash flow problems

• IRS notices

Many new business owners miss these deadlines entirely.

How to avoid this mistake

Quarterly due dates:

• April 15

• June 15

• September 15

• January 15

A tax advisor can calculate your exact estimated payments so you never risk penalties again.

5. Missing Out on Deductions

New entrepreneurs often overlook thousands of dollars in deductions, including:

• Home office

• Cell phone & internet

• Equipment & laptops

• Business travel

• Software subscriptions

• Professional services

• Marketing & websites

• Auto mileage

• Start-up expenses (up to $5,000)

How to avoid this mistake

Follow this rule:

If it helps your business earn money, it’s likely deductible.

Keep documentation and consult a tax professional to ensure you claim everything legally available.

6. Forgetting State-Level Requirements

Federal tax is only half the story.
Every state has its own rules, including:

• Annual reports

• Franchise taxes

• Sales tax registration

• Nexus thresholds

• Payroll tax filings

How to avoid this mistake

• Know which states you operate in

• Understand economic nexus rules (especially for e-commerce)

• File annual reports on time

• Use a compliance calendar

Businesses operating in multiple states must be especially careful.

7. Trying to DIY Complex Taxes

U.S. taxes are not beginner-friendly.
And the consequences of mistakes include:

• Penalties

• Overpayment

• Missed deductions

• Incorrect payroll

• IRS audits

• Incorrect entity setup

How to avoid this mistake

Work with licensed professionals (EA or CPA) who:

• Understand federal & state rules

• Can represent you before the IRS

• Optimize your tax strategy

• Ensure compliance in all 50 states

This is not an expense—it's an investment that saves you money.

Final Thoughts: Build Smart, Stay Compliant, and Protect Your Profit

New entrepreneurs don’t fail because they’re not talented.
They fail because they don’t understand the system they’re operating in.

Avoiding these seven mistakes can save you:

• Thousands of dollars

• Dozens of hours

• Stress, penalties, and IRS problems

• Long-term financial damage

But you don’t need to navigate this alone.

🚀 Need Expert Help With Your U.S. Taxes or Business Setup?

At TAM Mentor & TAM Accounting, we help entrepreneurs:

• Choose the right entity

• Reduce taxes legally

• Maintain full compliance

• File federal & state returns accurately

• Avoid IRS red flags

• Grow profitably in the U.S.

Book your service today and let experts handle the hard part.