Tax Penalties Your Small Business Should Watch Out for—Part 1
Last Updated April 14, 2023
The tax world can turn out to be quite cruel for all small businesses if they are dealing with their returns without the help of any tax preparation firm. More than 100 civil penalties are a part of the internal revenue code and small businesses are particularly guilty of committing mistakes that invoke these penalties. Any such tax penalty becomes a double whammy when it is coupled with an already high return.
In this three-part blog series, we are going to discuss all the common tax penalties that small businesses usually face. These penalties can be avoided by availing the services of experts that offer bookkeeping, tax preparation and accounting for small businesses.
Penalty for Underpayment of Estimated Tax
If you are underpaying your taxes, then you get subjected to this IRS penalty. This penalty is mostly charged through an interest rate set by the IRS itself. Expert tax preparation firms always recommend business owners to reevaluate estimated tax safe harbors in order to avoid underpayments and ensuing penalties. Any expert dealing in bookkeeping and accounting of small businesses can guide you in this regard.
Penalty for Late Filing
This is one of the most imposed tax penalties by the IRS. Interestingly, many proprietors unintentionally bear the brunt of this penalty because of their lack of information regarding filing deadlines. There is no doubt that the deadlines for filing tax returns are quite confusing.
For instance, the deadline for filing personal and corporate tax file is April 15. On the other hand, LLCs, S-corporations, and partnerships have to file their returns until March 15. By working with any tax preparation firm, one can avoid the unintended late filing of the returns. Tax preparation experts are aware of all the tax deadlines of any given year.
Missing the Submission of Form 1099
Businesses have to submit form 1099-misc to the IRS for all those payments (above $600) that it has made to freelancers and independent contractors. Here too, when you work without bookkeeping and tax preparation experts, you eventually miss the submission of some form 1099-misc throughout the year. The amount of the penalty depends on how late you have been with the submission. Work along with any tax preparation firm that can take care of the timely filing and submission of all the forms 1099.
We will continue discussing different tax penalties in the next part here.
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