It’s tempting for business owners to assume they only need to worry about tax compliance once a year. That’s a mistake, though. Maintaining compliance requires year-round work, so read on to find out about the five steps to follow to avoid trouble with the IRS.
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Business owners need to keep track of multiple due dates for filings, deposits, and payments of state and federal taxes. Income taxes withheld from employees’ paychecks are deposited based on a predetermined pay period that depends on the business’s operational procedures and its reported tax liabilities from the previous tax year. C-corporations and S-corporations must also pay estimated taxes quarterly. Ensuring that all tax deadlines are met can quickly start feeling like a full-time job, so it’s a good idea for business owners to seek professional help with taxes.
Fill Out Documents Correctly
The IRS is known for creating and collecting large amounts of complex paperwork. Business owners are responsible for collecting tax documents such as elections for withholding and copies of social security and ID cards from new hires and collecting W-9s from independent contractors. They must also distribute tax forms like W-2s and 1099s on-time and to the right workers, and that’s really just the beginning. Partners, owners, employees, and contractors all need to be provided with different forms, so things can get complicated quickly, and the help of a tax professional may be required.
Keep Accurate Records
There are two reasons business owners need to maintain accurate records of all their tax information. First, accurate records help business owners or tax professionals prepare correct filings for the IRS. Second, an accurate record of all tax paperwork and actions can help business owners avoid legal troubles if issues come up with the IRS. This is true even if the audit turns up problems that can’t be overcome by the company’s legal team, as an accurate paper trail can help with proving that the mistake leading to the audit was not deliberate.
Ensure Accurate and Timely Reporting
All taxpayers must file their taxes according to schedule, including businesses and business owners. Most businesses also have quarterly filing requirements. Failing to accurately report all of the previous year’s taxable activity on time will lead to penalties, so business owners need to stay on top of annual and quarterly taxes for the business in addition to filing their own personal taxes.
More than anything, the IRS cares a lot about accurate, timely payments. The cost of accidentally underpaying the IRS can be substantial since it involves penalties and interest. Business owners who intentionally underpay or completely avoid paying their taxes can also become the subject off criminal prosecution, which has the potential to result in more fines and, in worst-case scenarios, imprisonment. Even if business owners unintentionally underpay the IRS, the agency can still garnish wages, levy bank accounts, and place liens on commercial property, so the importance of making correct payments on time cannot be overstated.
The Bottom Line
Business owners can’t afford to just ignore their tax situations until the day before annual reporting and payments are due. Even those that don’t have to pay quarterly taxes are still obligated to keep records, provide and collect paperwork, and meet all IRS regulations. The easiest way to ensure compliance is to hire a professional who can help.