The Tax Resolution Institute works with countless business owners helping to resolve their tax problems. These issues can range from something as simple as failing to file a tax return to being help personally responsible for failing to make the company’s IRS payroll tax deposits. Most business owners with tax problems understand that these issues come more than one at a time. Keep reading to finding out what mistakes many business owners make that lead to tax problems…
4 Common Mistakes Business Owners Make When it Comes to Taxes
1) Failure to File Tax Returns and Pay Taxes
Upon creating a new business, many owners are unaware of what needs to be done to comply with running a business. This becomes evident quickly when an owner must determine what type of tax return do they need to file and when is the return due. The answer to this question varies based upon the type of business entity created. Many shareholder of corporations are not sure if they are set up as an S-corp or C-corp. How each reports their earnings varies greatly.
To illustrate the confusion that occurs, corporate returns are currently due in March (and may be extended to September) and LLC’s, partnerships and sole proprietorships are due in April (and may be extended to October); and to add even more confusion, the IRS is most likely going to change the due dates come 2017.
If you forget to or choose not to file, you will pay for the mistake. The Internal Revenue Service imposes a 5% per month penalty up to 5 months (25%) for businesses that file late. In addition, shareholders of S-corporations and partners of partnerships are charged monthly for late filed returns. For example S-corporation shareholders are currently assessed $195 for each month a return is delinquent. If an S-corporation has 5 shareholders the shareholder penalties will be $11,700 (5 x 12 x $195) for each year the return remains unfiled.
If you forget to or choose not to pay your taxes for an extended period of time, it gets even worse. In addition to 6%+/- interest per year (compounded daily) levied upon unpaid taxes, the IRS charges late payment penalties of .5% per month up to 5 months for taxes not paid when due. Keep in mind that filing an extension extends the time to file and not the time to pay. The bottom line is you should both file and pay the IRS on time to avoid costly penalties. If you are unable to pay, that should not be used as an excuse not to file.