In 2022, Americans filed some 164 million individual income tax returns. Of those returns, about 0.38% or 626,204 got audited by the Internal Revenue Service (IRS).
Such IRS audits can happen to business taxpayers, too. You can face one if you commit mistakes with business taxes. At the very least, the IRS may penalize you with a hefty fine.
Since you don’t want any of that, you must learn the most common business tax errors. Doing so can help you avoid them and their penalties.
Read on, as we’ve explained the top tax-related blunders you should avoid below.
1. Failing to Meet Tax Filing Deadlines
The types of business taxes you must pay can have a quarterly or annual deadline. For example, if you’re a sole proprietor, you only need to file annually for income taxes. That’s usually every April 15, although the IRS can adjust it if it falls on a weekend or holiday.
If you have employees, you have quarterly deadlines, with the first being April 15. This is the due date for the 1st quarter of the year’s estimated tax payment. Next is June 15, September 15, and then January 15 of the following year.
Miss those deadlines, and the IRS can slap you with a penalty.
2. Under Reporting Taxable Income
The IRS uses a computer to match what you report to them with other reporting sources. Examples include 1099R forms (retirement accounts) or 1099s (investment accounts).
The bottom line is the IRS will know if you don’t report all your taxable income. When they find out, they might schedule you for an audit.
If you’re unsure which income sources are taxable, get help from a tax preparation service.
3. Overestimating Donations
The best way to avoid this error is not to estimate but to check your donation receipts.
You should keep records of all your good deeds the IRS regards as deductible expenses. That way, you can report the correct amount and have a copy of the documents in case the IRS asks for them.
4. Not Taking Advantage of Tax Deductions and Credits
From tax depreciation to solar tax credits, these are just two tax breaks you may qualify for. Others include deductions for mileage, startup expenses, or home offices.
Your state government may be offering business tax incentives, too. For example, it may have tax programs for businesses with energy-efficient facilities.
5. Forgetting to Proofread Your Filled-Out Forms
Before finalizing and filing your returns and reports, review them several times. That can help you spot any error, such as a typo (e.g., you meant to enter $5,000 but typed in $4,000 by accident). It also helps ensure you’ve placed your signature on all documents that may require it.
Avoid These Common Mistakes With Business Taxes
Nearly a dozen forms of IRS penalties exist, from incorrect reports to failure to file or pay. You can face one or more if you commit any of the above mistakes with business taxes.
That alone should prompt you to be more careful with your returns or reports. Otherwise, you’ll not only have to pay more but may even become the subject of a dreaded audit.
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