The costly mistake of filing your taxes incorrectly with the IRS is one no business owner wants to make. From penalties and interest to the cost of tax audit, the consequences of a notice, rejection or tax audit can be detrimental to the business. If you are in a bind with the IRS, you may have made a common yet costly mistake. Here are some common tax form blunders:
- Transposed SSN or EIN – Depending on your business type and role in the business, mistakes entering your social security number or employer identification number (aka federal tax identification number) can result in delayed processing and errors in corresponding with the social security administration.
2016 Tip: Double check all numbers, name spelling and date of birth (if applicable) before signing the document.
- Signing all Appropriate Forms – forgetting to sign any tax documents is the equivalent of forgetting to sign a check. You forfeit any returns and delay processing if you forget this step. If your business has co-founders, check with a tax expert to see whether both parties need to sign the same form.
2016 Tip: If filing via paper form, use sticky note flags for each page that indicates a signature; if e-filing your business documents, double check all pages before clicking submit. Most software will alert you if a field is left blank.
- Incorrect Bank Account Numbers – When entering your bank information for a refund, make sure it is correct. If the information is incorrect, you will have a very difficult time obtaining your refund.
2016 Tip: Have blank check from your business account to double-check routing and account numbers.
- Discrepancies between Tax Return and 1099-Forms – This costly error results in notice, penalties and interest. Contractor work is often filed as Form 1099-MISC, but for financial purposes for stocks and other investments, there’s also the Form 1099-INT (for interest) and Form 1099-DIV (for dividends).
2016 Tip: Be sure all 1099 forms are included with your return to avoid an IRS notice. Because each 1099 form is automatically sent to the IRS, there will be a glaring error if you neglect to include your copy.
Found your mistake? If you e-file the tax return, the IRS lets you know usually within 48 hours if the return was accepted or rejected. If rejected, you have until the tax day (April 15, or Oct 15 if you filed for an extension) to provide correct information. If your return was processed with a rejection error code after the due date, you have five days to correct your mistake to avoid any late filing penalties.
What Types of Tax Form Penalties Are There?
- Late Payment Penalties – 0.5 percent of amount due for every month payment is late with a maximum penalty of 25 percent. This type of penalty is issued when taxes are underpaid due to incorrect information.
- Negligence Penalties – Dependent on total amount you owe. This penalty comes about due to failure to understand and state tax liability and can be compounded with other penalties.
- Civil Fraud Penalties – 75 percent of total underpayment – typically due to overseas account information not reported, but in general, if you attempt to hide any critical information required for reporting, you will face this penalty.
- Tax Evasion – prison time (up to five years) in addition to up to $250K fine. This is considered civil fraud with more severe concealment and overstatement of deductions or claimed tax credits.
Tax audits often uncover more deceit than most realize. You can avoid tax penalties, interest on amounts owed and even prison time by ensuring your business financials are handled by payroll tax experts like those at Padgett Business Services®. Our four decades of tax preparation business excellence in assisting business owners proves we thoroughly understand payroll laws and IRS compliance. Here’s your top 2016 tax tip: Hire Padgett to oversee your payroll processing. Use our contact form to schedule a consultation or call us at (706) 548-1040!
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