Tax issues are an inevitable aspect of being a business owner, and you will encounter them sooner or later. The IRS doesn’t take taxation lightly, especially when it comes to payroll tax. The question is not whether you will encounter tax problems at some points as a business owner, but how you will respond to them when they appear. Like many things in life, prevention is the key to success. Find out more about key tax problems you should avoid:
Late Tax Payments Or Deposits
Being late on your taxes will lead to all sorts of penalties. Typically the IRS will hit you with a monthly charge which is 0.5% of the taxes which are owed, but they can also throw in an additional 25% charge whenever you’re late with your tax deposits. To avoid these charges you must pay your tax deposits by the 15th day of the month in which the tax deposits are withheld from the paychecks of your workers.
Not Sending W-2 Forms
All businesses are required to issue a W-2 form for each of their employees, and it must be done by January 31st. In situations where an employee is no longer working for you it is essential to make certain that the envelope which contains the W-2 form is postmarked and is provided to the former employee before January 31st. An employer that sends W-2 forms later than this may be subject to a fee for every form that is not received on time. Employers that intentionally fail to provide their workers with W-2 forms may be subject of other charges and even sanctions.
Forgetting To Pay Or Withhold Federal Taxes
It is mandatory for every employer in the U.S. to withhold Social Security, Medicare and income taxes from the salaries of their workers. Not doing so will result in various fines from the Internal Revenue Service. Employers who withhold taxes, but then choose not to make payments to the IRS could face criminal charges and possibly incarceration.
Errors When Performing Calculations
The math involved with doing taxes is fairly simple, but the consequences for making mistakes are serious. It is common for business owners to make mistakes when performing calculations for their taxes. If errors are made involving withholding you could find yourself being hit with the same type of fees which are normally charged to business owners who are late. It is therefore essential to always double check your calculations to make sure they’re correct.
Not Sending 1099 Forms
Failing to send a 1099 is another common tax issue that many business owners run into at some point. It is especially common among businesses that use third party entities or subcontractors. Any organization or individual who is paid $600 or more for a calendar year must be sent a 1099 and copies should also be forwarded to the IRS. If this is not done you could find yourself paying a $75 fee for every 1099 that was not sent out, along with an additional 31 percent of the amount which was paid in taxes. It is absolutely essential to make sure your taxes are done properly the first time, and those not experienced with payroll should seek assistance.