Common Questions About Tax Filing

Tax Filing Tips for Small Business Owners: What to Do When Things Aren’t Perfect

Tax filing can be a major source of stress for small business owners. The process is complex, filled with detailed paperwork, and deadlines that come at you quickly. Even more frustrating is that sometimes things don’t go as planned—mistakes happen, deadlines are missed, and questions arise.

At Get Better Bookkeeping, we specialize in online bookkeeping services and CFO services for business owners throughout the year, helping them stay on top of their finances and minimize stress during tax season. However, we understand that tax concerns can arise, even after working with a CPA. That’s why we’ve compiled answers to some of the most common questions small business owners have when things don’t go according to plan.

1. What Happens If You Don’t File Taxes On Time?

Missing a tax filing deadline is a common issue for many small business owners. Whether it’s due to an oversight, confusion over deadlines, or unexpected life circumstances, missing the filing deadline can have consequences. However, all is not lost.

Here’s what to do if you missed the tax deadline:

• File as Soon as Possible: Filing late is better than not filing at all. It helps minimize penalties, such as:
  • Failure-to-File Penalty: 5% of the unpaid tax for each month (up to 25%).
  • Failure-to-Pay Penalty: 0.5% per month, plus interest.
• Request a Filing Extension: If you realize you missed the deadline, don’t panic. You can request a filing extension for up to six months, but note that this only extends the time to file your paperwork—not the time to pay your taxes. If you owe money, you’re still required to pay by the original due date to avoid penalties.
• Explore Payment Plans: If you can’t pay your tax bill, the IRS offers payment options like installment agreements.

It’s better to file late than not file at all because the IRS has ways to track down non-filers, and it’s much easier to resolve the issue when you take the first step of submitting your return.

2. What Happens If You Make a Mistake When Filing Your Taxes?

Mistakes happen, but they can be corrected. The IRS allows you to amend your tax return if something went wrong. To do this, you’ll need to file Form 1040-X (Amended U.S. Individual Income Tax Return). This form allows you to adjust your income, deductions, or credits.

Here are some common errors that business owners might encounter:

• Incorrect deductions: You may have missed a deduction you were entitled to claim, such as for business expenses or home office deductions.
• Wrong classification of income: Sometimes, business income may be reported incorrectly or misclassified.
• Math errors: A common mistake is simple arithmetic errors. If this is the case, the IRS will generally correct the error for you, but you should check to ensure it’s resolved properly.

If you realize there’s an error on your tax return:

• Amend Your Return: Use Form 1040-X to adjust income, deductions, or credits.
• Common Errors to Watch For:
  • Missed deductions, like business expenses or home office claims.
  • Misclassified income.
  • Math errors (often corrected by the IRS but worth double-checking).
• Act Quickly: Correcting mistakes early minimizes penalties and ensures accuracy.

3. How Do You Find Out How Much Money You Owe to the IRS?

Determining your tax liability can be challenging, especially for businesses with multiple income streams. Here’s how to get clarity:

• Check your records: Your profit and loss statement (P&L) will show your income and expenses, and from there, you can calculate the net income. From that, you can estimate your tax liability.
• IRS Forms: Review your tax return forms. If you’re unsure about the numbers, an accountant or CPA can help ensure you’re calculating everything correctly. For instance, if you file as a sole proprietor, you’ll need to review your Schedule C, which summarizes your business income and deductions.
• IRS Account: You can create an online account with the IRS to view your tax balance, including any unpaid taxes or penalties. This is a helpful tool to get the most up-to-date information.
• Common Assumptions: A lot of small business owners assume that their net income directly equals the amount they owe in taxes. However, the reality is more complex. You also need to factor in your self-employment taxes, which are calculated on your net earnings and are separate from regular income tax. In addition, things like the qualified business income (QBI) deduction, tax credits, and other variables can significantly alter the final amount owed.

If you find that you owe more than you anticipated, or if the amount is higher than you can pay, it’s crucial to act fast. The IRS offers payment options like installment agreements or payment plans, so don’t ignore the bill.

4. Should You Make Estimated Tax Payments Throughout the Year?

A common question for small business owners is whether it’s better to make tax payments throughout the year or wait until the end of the year to pay everything at once. The answer is generally both. Here’s why:

• Quarterly Estimated Tax Payments: The IRS expects businesses to make estimated tax payments throughout the year. This is especially important for self-employed individuals (sole proprietors, LLC owners, etc.), who typically don’t have tax withheld from their paychecks. By making quarterly estimated payments, you can avoid underpayment penalties and spread out the tax burden.
• The IRS sets deadlines for quarterly estimated payments on the 15th of April, June, September, and January. You should calculate your projected income, deductions, and credits each quarter to determine how much to pay.
• End-of-Year Payments: In addition to quarterly payments, you may also want to review your financials at the end of the year to see if you can make any additional payments. For instance, if you expect to owe additional taxes, making a payment before December 31 can help reduce your taxable income for the year.

Ultimately, spreading your payments out throughout the year helps with cash flow management and avoids the large lump sum payment that could cause financial strain at year-end.

5. What If You’re Behind On Tax Filing by Multiple Years?

If you’re behind on filing taxes for several years, don’t panic. It’s not too late to get caught up, and the IRS offers options for business owners who have fallen behind on their filings. Here’s what to do:

1. File Old Returns: Start with the oldest missing return. The IRS requires that you file all outstanding returns before it can process your current-year filing. Tax professionals can assist with this process.
2. Request Penalty Relief: Missing tax filings for multiple years may result in significant penalties and interest on the unpaid taxes. However, the IRS may offer penalty relief under certain circumstances, such as for taxpayers facing financial hardship or for those who have a history of filing on time.
3. Set Up a Payment Plan: If you owe taxes from previous years, the IRS offers options to help you pay off the debt over time, such as installment agreements or offers in compromise.

Once caught up, prioritize staying current to avoid future penalties.

Conclusion

Filing taxes as a small business owner can feel daunting, especially when things go wrong. However, it’s important to remember that mistakes, missed deadlines, and underestimating your tax liability are all solvable problems. Whether you’re filing late, made an error, or haven’t filed for several years, taking action as soon as possible is key to minimizing penalties and resolving your issues.

Need Help Navigating Tax Season?

At Get Better Bookkeeping, we understand that tax season can be overwhelming. Our year-round bookkeeping services help business owners stay organized, proactive, and prepared. Whether you’re navigating missed deadlines or correcting errors, we’re here to support you every step of the way. Contact us today for expert help.