Small Business IRS Tax Preparation Tips
Along with the holiday season comes the end of the year. This signals the beginning of the need to really buckle down and prep for tax season. This is especially true if you are a small business owner.
The first quarter of the year is what we consider tax preparation season. All your paperwork, receipts, travel for the past year, employee records, payroll, should be in order and filled in completely. Being organized helps fend of any financial surprises or pitfalls for the company.
Ideally, tax preparation should be kept on top of year-round, so you don’t have any surprises in April at the time of filing. Whether you are looking to organize 2021’s records or planning ahead to make the most of 2022 we have some tips to follow that can help keep you on track with less stress.
ORGANIZE YOUR PAPERWORK – Tax Preparation Planning
In January, companies begin sending out and receiving tax documents. As a small business owner its imperative to avoid rushing last minute. A tax professional can help you handle how to categorize documents.
If you decide to hire a licensed tax attorney, they will require certain documents including proof of identity to prepare tax documents on behalf of your business. They will also need your Employer Identification Number (Tax ID).
Your tax attorney will need to understand a full picture of your finances. This includes income from gross sales or services, sales records, business bank account interest, and other forms of income. The attorney will require all your business expenses. This can help qualify you for deductions and credits that reduce your tax liability.
Expenses – Itemized
Have all expenses itemized, categorized, and detailed. It will save time later trying to recall details.
Payroll Taxes – Calculated
Along with the credits and deductions, payroll taxes, should also be kept up to date and calculated through the year as part of the estimated tax payment schedule.
Businesses that could use additional breathing room in paying their payroll taxes can take advantage of a payment plan with the IRS. You may be eligible if you owe less than $25,000 in combining tax, penalties, and interest, alongside filing all required returns.
Need an Extension?
Similar to filing an individual tax return, you can request an extension from the IRS to postpone your filing date. Download Form 7004 to request an automatic extension, which can be advantageous for businesses. The purpose of the extension is giving you a grace period to file your final tax turn, yet you must still pay the taxes you believe that you owe.
Failing to Pay Small Business Taxes
The IRS does not take kindly to businesses that fail to pay the owed tax, on purpose or through an error.
Tax avoidance is illegal.
If your company does not file taxes or does not pay the full amount, then you may be subject to 10 to 15% penalty. This applies to every month the payment is delinquent, up to a maximum of 25%. An additional penalty of $135 and interest equal to the federal short-term rate plus an additional 3% may apply. Even paying late by one business week or less could result in your business incurring a 2% penalty.
The IRS has the legal right to seize your assets and property if you do not comply with notices in attempts to collect or setup a payment arrangement. They can also choose to file criminal charges against the owners and any board members of the company personally.
Willfully failing to pay taxes, considered tax evasion or tax fraud, is a considered a felony which is punishable by a fine of $10,000, five years in prison, or both.
What to do if you are a business owner who has back taxes unfiled or unpaid
Hire a tax attorney immediately to review your case. If you are in the Southwest, Florida area we invite you to call Babbitt Tax Law at 239-300-9492 www.babbitttaxlaw.com. We will review your case for free and help clarify where you stand and what we can do to help untangle you and your company from the IRS.