5 Costly Mistakes to Avoid When Preparing Your Business Tax Returns in 2025

Business owners and independent contractors (including gig workers) need to be careful when preparing their tax returns in 2025. Business tax filing mistakes can lead to substantial penalties—including criminal penalties in some cases. Learn more from New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.

Costly (and Common) Business Tax Mistakes to Avoid in 2025

While business owners and independent contractors can use a variety of tax strategies to mitigate their federal liability, there are also several common “strategies” that cross the line from lawful tax planning to unlawful tax evasion. Knowing where this line exists—and making sure you don’t cross it—is essential for avoiding liability for back taxes, interest and penalties.

With this in mind, here are five examples of costly (and common) business tax mistakes to avoid in 2025:

1. Underreporting Business Income

Underreporting business income (including accepting payments under the table) is a common means of seeking to avoid federal income tax liability. It is also a clear violation of the Internal Revenue Code. Business owners and independent contractors must fully report their income from all sources in order to comply with the law.

2. Claiming Invalid Business Deductions

Claiming invalid business deductions is another common—and illegal—means of seeking to reduce business owners' and independent contractors’ taxable income. This includes invalidly claiming the home office deduction, deductions for travel and entertainment, deductions for meals, and deductions for electronics and furnishings.

3. Claiming Invalid Business Tax Credits

While there are several tax credits that are generally available to small businesses and independent contractors, business owners and independent contractors cannot claim these credits in all scenarios. If you improperly claim a business tax credit on your (or your business’s) federal tax returns, this can significantly increase your risk of facing scrutiny from the IRS. The IRS has also recently warned against claiming business tax credits that don’t actually exist.

4. Relying on Tax Strategies You Found Online

In addition to warning about fake business tax credits, the IRS has also recently warned against relying on bad social media advice during Tax Season. According to the IRS, “[a] growing concern in 2025 . . . involve[s] incorrect tax information on social media that can mislead honest taxpayers with bad advice . . . . Social media platforms routinely circulate inaccurate or misleading tax information, including . . . TikTok where people share wildly inaccurate tax advice.”

5. Placing Too Much Reliance on Tax Software or a Tax Professional

While relying on tax software or the advice of a tax professional might seem like the right approach, business owners and independent contractors need to be careful here as well. Making an informed decision about the software or professional you choose is key, as relying on tax software or a tax professional is not an excuse for failing to meet your federal tax obligations.

Request a Call with New Jersey IRS Lawyer Kevin E. Thorn

New Jersey IRS lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience advising business owners and independent contractors regarding federal income tax compliance. If you have questions or concerns about your federal tax obligations in 2025, we invite you to call 201-842-7696 or contact us online to arrange a confidential consultation.