Many small businesses are slammed with tax penalties for errors that can be avoided. This article will explore these mistakes to keep you from turning out thousands of dollars in penalties and grow your business well.
While there are many tax penalties a small business face, a lot of them can be avoided. Not being careful alongside some other errors like missed deadlines can result in a considerable fine. A small business, however, needs all the cash it can get to grow its business. As a result, a knowledge of such penalties will go a long way to help business owners prevent such errors.
Tax Penalties Common to Small Business
Wrong Return
With a false return, you might be slammed with a massive penalty in some situations. For a small business, the fine can be up to 20% if there are avoidable errors in reporting taxable income. This error is not about a simple math mistake but the inability of a business owner to prove a deduction that such a business took in an audit.
In some cases, it might be due to the business's failure to report the entire income it earns in a business year. The only remedy around this is to have an accountant such as TUCKER ACCOUNTING SERVICES, LLC. handle your taxes.
Not Meeting a Tax Deadline
If you do not make your tax payment in time, there is a penalty of about 0.5 to 1% for every month that the tax bill payment is delayed. Uncle Sam will add the penalties to your tax if you do not pay them on time when you submit your return.
As a small business, if you do not make your payroll deposit when due, you will have a lot more to deal with in tax payment. Make sure to mark your calendars before the due date so you can stay on top of your payroll taxes and other tax obligations.
Civil Fraud Penalties
One of the most significant tax mistakes common to small business owner is to report less income with the intent to commit fraud. Popularly known as underreporting, one will be slammed up to 75% of the actual amount you did not report if Uncle Sam believes you intentionally tried to deceive her. Also, there is a possibility of being charged with a criminal tax fraud case.
The only way around this is to ensure the accuracy of income documentation. With a sound accounting department, the chances of missing income significantly reduce.
Errors in Deductions
Your records need to be succinct. It is the key to avoid spending hundreds of dollars on penalties when you take deductions you cannot prove. For example, the most common deduction mistake many small business owners are usually guilty of is vehicle mileage. One might need to make available a detailed journal record that lists out all the mileage you used should there be an audit. Failure to prove this beyond doubt could trigger a penalty of up to 25%.
You can avoid penalties with the proper backup and documentation. Your records need to be constantly updated to prevent deduction mistakes
Charity Donation Mistakes
It is vital for businesses that donate to charity to have a correct list of the items you donated alongside their worth (for donations in-kind). It is also essential to get a receipt from the organization, and Uncle Sam should recognize such charity.
There is a 25% penalty if you cannot prove these. This makes it essential to verify all information before submitting it.
Conclusion
It is possible to avoid these small business tax return mistakes and penalties. One way is to work with a trained professional to take care of your tax reporting. Avoid trying to outsmart the IRS and have detailed records if you want to make some claims on your returns.
Above all, do not hide anything from Uncle Sam. Due to an audit, many small businesses have had to close down because of high fraud penalties or unreported income.
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