5 Common Tax Mistakes New Jersey Small Businesses Must Avoid

Running a small business is a juggling act, and it’s easy for tax compliance to slip through the cracks. Many New Jersey small business tax mistakes happen simply because owners are unaware of the state’s specific filing rules.

Failing to Collect and Remit NJ Sales Tax

We see many new business owners forget to charge sales tax when required, or they collect it but don’t remit it properly. In NJ, if you sell taxable goods or certain services, you must register for sales tax and file returns. For example, a Maplewood boutique owner might assume “Oh, 6.625% isn’t much, maybe I don’t need to bother for a few sales” – wrong! Not charging required sales tax can lead to owing back taxes plus penalties. Conversely, charging tax on exempt items (like clothing) or to exempt customers (like nonprofits with a certificate) is also an error. Avoid it: Understand what’s taxable in NJ (see Sales Tax 101 above) and set up your point-of-sale or invoicing system to apply the tax correctly. File your sales tax returns on time (NJ requires either monthly or quarterly filings by the 20th). If your business sells online across states, be mindful of economic nexus rules (NJ’s threshold is $100k/200 transactions) – if you cross that, you need to start collecting NJ tax. This mistake is costly because NJ audits sales tax aggressively. Use accounting software or a CPA to reconcile that you’re paying the state exactly what you collected from customers.

Mixing Personal and Business Finances 

This is both a bookkeeping mistake and a tax mistake. If you blur personal expenses through your business accounts (or vice versa), you risk deducting non-deductible personal costs as business expenses. Not only can that lead to IRS trouble (disallowed deductions, penalties), but in NJ it can threaten legal protections of your LLC or corporation. For instance, paying your home groceries out of the business account and calling it “office supplies” – not acceptable. Avoid it: Maintain a separate business bank account and credit card. Pay yourself a proper salary or owner’s draw, then pay personal bills from your personal account. This clean separation makes bookkeeping easier and audit trails clearer. When it’s time for taxes, you’ll only have legitimate business expenses on the books. Remember, the IRS watches for excessive personal expenses on business returns. And New Jersey’s tax department can deny deductions that aren’t “ordinary and necessary” for the business. Keep things clean and you won’t inadvertently cheat yourself come tax time.

Misclassifying Workers (Employee vs. Contractor) 

Many businesses in NJ hire freelancers or contractors. But if those workers should be classified as employees under IRS/NJ rules, misclassifying them is a serious mistake. NJ in particular has been cracking down on worker misclassification with new laws and penalties. If you pay someone like an independent contractor but control their work hours, provide them tools, etc., they might legally be an employee – meaning you owe payroll taxes, unemployment insurance, etc. Avoid it: Understand the classification tests (NJ uses the “ABC test” which is quite strict). If in doubt, err on the side of treating someone as an employee – yes, you’ll have to do withholding and pay NJ payroll taxes, but you avoid potentially hefty fines and back taxes later. If you do use contractors, issue Form 1099-NEC for each by January 31 if you paid them $600+ for the year. One misclassification red flag is failing to issue required 1099s – it signals you might be hiding wages. Both IRS and NJ DOL can investigate. Getting it right also protects the worker – misclassified contractors miss out on benefits and NJ unemployment/disability coverage, which is why the state is aggressive on this issue. Consult a CPA or employment lawyer if unsure. Don’t just pay everyone “under 1099” to save a buck – it can backfire massively.

Ignoring Estimated Taxes and Payroll Tax Obligations 

Small business owners often get caught off-guard by the need to pay taxes throughout the year. If you have profits, the IRS and NJ expect periodic estimated tax payments (quarterly). Likewise, if you have employees, you must deposit payroll taxes on a regular schedule (usually monthly or semi-weekly) and file quarterly payroll returns. A common mistake is to wait until April and then face a huge tax bill plus underpayment penalties. Or, in the case of payroll, to use the money for other expenses and fall behind on payroll tax remittances – which can trigger some of the harshest penalties and even personal liability. Avoid it: For estimated taxes, mark the due dates (April 15, June 15, Sept 15, and Jan 15) and use last year’s tax as a safe harbor to avoid penalties. Essentially, if you pay in 100% (110% for higher incomes) of last year’s tax via timely estimates, you’re protected from underpayment fees. New Jersey has its own estimated tax vouchers as well (generally same due dates). Many small biz owners coordinate this with their CPA during quarterly check-ins – a proactive CPA will help you project income and set aside tax money (see our blog on Budgeting for Taxes to avoid April panic). For payroll, if you use a payroll service, they will handle deposits. If doing it yourself, never miss a payroll tax payment – the IRS can levy up to a 10% penalty per month on missed deposits. NJ payroll taxes (withholding, unemployment, disability) also must be paid timely. Set up EFTPS for federal and NJ’s online system for state and pay those on schedule – treat payroll tax money as untouchable trust funds. One tip is to use a separate payroll bank account so you don’t accidentally spend those funds.

Neglecting New Jersey Annual Reports and Registrations 

This is a NJ-specific trap: every NJ business entity (LLC, corporation) must file an Annual Report with the NJ Department of Treasury each year (and pay a $75 fee). It’s not a tax, but if you fail to file this report for two consecutive years, New Jersey can void or dissolve your business! Many busy owners simply forget, since the report is due by the end of your formation anniversary month, which may not be an obvious date like a tax deadline. Similarly, forgetting to register for necessary NJ taxes (like sales tax, payroll) can lead to operating illegally. Avoid it: Put the annual report due date on your calendar and enroll in NJ’s email reminder system. The filing is quick (confirming your business address/officers) and can be done online. If you do miss it and your business is administratively dissolved, there is a process to reinstate, but it’s a headache (and you can’t legally conduct business in the interim). Also, if you change addresses, update it with NJ Division of Revenue so you don’t miss the mailed reminders. Aside from annual reports, new businesses often miss necessary tax ID registrations – e.g., starting a business and not realizing you needed to register for NJ payroll because you hired your first employee, or not registering for sales tax because you thought selling online exempted you (it doesn’t, if you have NJ customers). The state cross-checks various things; for example, if you issue W-2s but never registered as an employer, NJ will catch on. Stay organized with a compliance checklist when you launch (EIN, NJ Business Registration, sales tax cert, payroll accounts, etc.), and keep a tickler for annual renewals.

Bonus Mistake: Not seeking professional advice for major events. For instance, if you’re selling your business or buying a vehicle in the business, there could be tax angles (asset sale vs stock sale treatment, Section 179 deductions, etc.) that you might mishandle without guidance. The cost of consulting a CPA is often far less than the cost of a tax mistake. New Jersey has some unique tax nuances (like no deduction for federal taxes or QBI on the NJ return, or how NJ treats S-corp income), so local expertise is key.

In summary, proactivity and record-keeping are your best defense against these common pitfalls. Use software to track taxes, maintain separate accounts, mark your calendar for all obligations (state and federal), and don’t hesitate to get a CPA’s help especially in the early stages. Cleaning up a tax mess after the fact (penalties, interest, or worse – an audit adjustment) is painful and expensive. By avoiding the five mistakes above, you’ll keep your business in good standing with Uncle Sam and the State of New Jersey, leaving you free to focus on growth instead of putting out tax fires.

Ready to Fix Tax Mistakes Before They Cost You?

At Gregory Monaco, CPA LLC in Livingston, NJ, we help small business owners stay one step ahead of costly tax issues. From separating personal and business finances to managing payroll, sales tax, and quarterly estimates, our team ensures your books are accurate and compliant — before the IRS or the State of New Jersey ever come calling.

We provide proactive guidance to help you avoid penalties, streamline recordkeeping, and uncover savings opportunities you might be missing. Whether you need help cleaning up past mistakes or building a stronger tax strategy for the year ahead, we’re here to make small business taxes simple, compliant, and stress-free.

Let’s turn your tax challenges into opportunities for better financial control and growth.

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Gregory Monaco, CPA | Livingston NJ (serving NJ + virtual nationwide)