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Tax Penalties Explained for Small-Business Owners
Running a small business means that there are plenty of tax- related things you need to know. Many small-business owners don’t understand some of the more complicated aspects of taxes, so they end up making mistakes filing, under-reporting their income, and a lot more. If you want to prevent these problems from occurring in the first place, you need to know about these tax penalties and how to avoid getting hit with them. The IRS wants to make sure that every citizen and business owner is paying their taxes correctly. To do this, they resort to the “intimidation” of tax penalties. They charge these tax penalties when you’re not in compliance with the tax law. There are plenty of these penalties, each with a specific purpose and severity for tax lawbreaking. What Are Tax Penalties?
percent, if you make more than $150,000) of your annual tax. Furthermore, you’ll have to pay that in quarterly installments and on time to avoid a penalty. • Not filing or not paying: The easiest penalty to avoid is the one you get when you fail to file your taxes correctly and on time. The penalty for such a simple thing can be very problematic: 5 percent and up to 25 percent interest per month. It’s also vital to file even if you can’t pay, because you’ll still get the penalty for not filing in addition to the one for not paying. If you fail to pay, the fine is 0.5 percent for each month in default, factored by the amount you owe. If you can’t pay everything that is due, you need to explain and pay as much as you can to avoid any penalty. • Inaccuracies: When the IRS finds substantial errors in your filings, they’ll end up charging you with a 20 percent penalty. They usually assess this after an audit. If you have questions or you have received penalties on your tax returns, call us to see if we can get those penalties abated on your behalf.
The Most Common Tax Penalties and How to Deal With Them
• Underpaying taxes: In most cases, if you fail to pay at least 90 percent of what you owe in taxes for a year, the IRS will charge you with a penalty. To avoid getting this common penalty for small-business owners, you need to pay 100 percent (or 110
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