Don’t Fall into the IRS Pit: 5 Common Tax Pitfalls All Small Businesses Should Know

Posted on by Ink Well Mag

Accountant Making Tax CalculationsThe potential penalties that the Internal Revenue Service (IRS) could impose to reprimand small business for their tax mistakes is daunting. If you’re an owner of a small business, you should best keep these common small business tax mistakes in mind and how you could avoid making them.

  • Filing Your Business Taxes Late – The IRS could penalize you if you file specific income tax returns or other tax forms late. The price is an extra 5% every month on your outstanding balance.
  • Paying Your Business Taxes Late – It’s common practice for the IRS to impose a penalty between 0.5% and 1% every month to income tax bills that are paid late. The IRS computer system tracks this standard penalty automatically whenever a small business files a tax return, but pays late or don’t pay the entire outstanding balance. In addition, penalties for paying payroll tax deposits late are drastically higher.
  • Failing to File and Pay Your Taxes on Time – There’s a particular rule if you both file and pay your taxes after the deadline. You could face a combined or stacked penalty of 25% of your owed amount if you failed to pay in the initial five months following the due date, says a top CPA in Utah.
  • Inaccuracies on Your Tax Returns – The IRS could likewise enforce a 20% penalty on you if they find proof that you understated what you owe them or were unreasonably careless or negligent in stating your income. A small business could incur this penalty if the IRS finds out their error because the small business is either unable to validate a tax deduction during an audit or if it failed to state their income.
  • Underpaying Your Estimated Business Taxes – Many small businesses get penalized with a penalty for underpaying their taxes. Under the IRS guidelines, self-employed people should estimate their annual income tax accurately and pay it off in quarterly installments within the year.
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Business taxes are challenging for a lot of business owners, what more with all the other things that you have to attend to keep your business running smoothly. Due to this, however, it’s easy to commit mistakes on your tax returns. However, being aware of these common business tax mistakes would make certain that the IRS wouldn’t have a reason to audit or worse, penalize you.