Common Tax Penalties Your Business Should Watch Out For
Taxes and penalties are among the most common challenges that many business owners face. No matter what the nature of your business is, you need to make sure that you are paying your taxes on time and also filing for the tax return with the help of a professional if you are unable to do it on your own. In addition, being aware of the penalties that can occur can help you create plans in addressing them before they impact your business. Here are several types of tax penalties to be mindful for as a business owner.
You cannot just pay a certain amount of your tax. This is generally far from how tax payments work. You need to pay all your taxes otherwise you can be penalized under the IRS (Internal Revenue Service) penalty. The penalty has an interest rate on underpayment penalties as well.
Filing for tax is important, so you need to make sure that you do it well on time. A late filing penalty is among the most common penalties imposed by the IRS. Deadlines for filing for the tax could get confusing, since you are already dealing with a lot of business-related issues.
When filing for your taxes, you need to be extra careful with the numbers otherwise you can be penalized for inaccuracies or inconsistencies. To avoid inaccuracies, try to have another senior or financial member of your team review your data and make sure everything is free of errors. The IRS charges a 20% penalty in such cases.
If the IRS finds out that you have filed a fraudulent tax return, you will be severely penalized. You cannot under report your income with the intention of committing fraud. Sometimes, inaccuracies or inconsistent reporting can also lead the IRS to believe you are attempting fraud. If this happens, you may be charged with a 75% penalty.
Trust Fund Recovery Penalty (TFRP)
When you have a business, you may be cutting employees payroll taxes that are kept in the trust department. You need to make sure that those are clearly mentioned and stated in your return documents. By doing so, you can avoid a penalty from the IRS for these types of cases.
Taxes become a priority for your business as least once a year, which makes it important to be mindful of the penalties and challenges that can occur with this process. The previously mentioned penalties are some of the most common ones to understand and relay to your team. As you work on managing and growing your business, be sure to have a plan to address each of these penalties.