As a taxpayer or small business owner, tax compliance issues might be one of the last things you think about. Tax compliance issues can range from paying penalties for a late-filed return to paying way more tax than you need to.
These types of tax compliance issues are easily forgotten when you’re busy running your business. It’s our job as your accountant to ensure you don’t fall prey to these five tax compliance issues.
1. Overpaying Taxes
According to Forbes, 93% of business owners are overpaying their taxes. This can easily happen when you aren’t aware of all the tax credits and deductions available to you. Tax laws change all the time, which means new credits and deductions are made available every year.
As your trusted business advisor, we eliminate tax compliance issues by keeping up to date on the constantly changing tax laws so you’ll pay the least amount of tax possible.
2. Paying Unnecessary Penalties
Unnecessary penalties most often happen when you file your taxes, or other related forms, late. We get it—as a business owner, you’re extremely busy. Penalties of up to 25% of your tax bill are incurred on late returns, depending on just how late they are.
This is a huge chunk of cash that can be saved by filing on time.
3. Missing Expired Tax Credits
Missing expired tax credits is the opposite of not claiming tax credits and deductions you are eligible for. Some tax credits and deductions have an expiry date, and if you claim them after they’ve expired, they will be disallowed. When tax credits or deductions are disallowed, the IRS will adjust your tax return to remove them, increasing your tax bill.
4. Forgetting About Employment Taxes
When you have employees or if you pay yourself wages, you’re required by law to pay employment taxes. Employment taxes finance things like Social Security, Medicare, and federal unemployment insurance.
The IRS charges penalties for failing to pay employment taxes as well as calculating them incorrectly.
5. Filing Late
As mentioned above, filing late is one of the most common reasons for paying unnecessary penalties. Now, you might be thinking, “What about extensions?” Yes, the IRS does grant extensions, but an extension to file your tax return doesn’t mean you have an extension to pay the taxes you owe. This is why you must estimate your tax liability and pay any amount owing when requesting an extension.
Paying taxes late is another common way of paying unnecessary penalties. The IRS charges interest on late payments too. The IRS interest rate is calculated quarterly and is currently the federal short-term rate plus 3%.
If these issues cause you to worry that you’ve been throwing money away, it’s not too late. We pride ourselves on preparing your taxes accurately and on time. We won’t let you fall prey to these five tax compliance issues. Schedule a call today to learn more about how we can help.