Operating a small business naturally come with various complexities, at the top of the list being tax reporting. Since tax reporting could be complicated, especially if you’re a new small business owner, there’s a high possibility that you’ll run into issues with the Internal Revenue Service or IRS.
And if you do get into a problem with the IRS, you could face extra penalties, plus interest.
With this in mind, familiarizing yourself with these common tax-related issues and their penalties could help you avoid them:
You could be charged this penalty if you owed taxes and failed to file them within the filing period. You could be charged 5% per month up to a maximum of 25% if with accumulated interest. According to Sorensen & Company, a tax planning expert in Utah, it is extremely crucial that you still file for your small business taxes, even if you can’t pay them because the penalty for not paying them is significantly lower.
Underpaying Estimated Taxes
Failing to pay 90% at least of your current bill would result in penalties. Take note though that you won’t be charged if you pay 100% of your tax bill last year in quarterly installments.
Failing to Pay for Penalty
You could be charged .5% to 1% per month (up to 25% maximum) on your outstanding balance, but this could be lowered to .25% if you make an installment arrangement with the IRS to pay off your back taxes.
If the IRS finds and proves that you filed taxes intending to commit fraud or under reported your taxes, you would be charged 75% on the amount that you underpaid.
You could be charged 20% if the IRS discovers that you understated your taxes or submitted inaccurate information because of negligence.
When you understand the most common issues that you could face concerning your small business taxes, you would be in a much better position to avoid problems with the IRS. So strive to file your small business taxes as honestly and accurately as possible, and don’t hesitate to ask for professional help when needed.