There are more than 40 types of information returns that the Internal Revenue Service (IRS) requires to be filed. Information returns are vital to reporting and verifying income tax in the U.S. and matching individual tax returns to determine compliance. Filing the correct returns in a timely manner is contingent upon having correct information to remain within compliance. Failure to file on time or with incorrect information may result in penalties charged to taxpayers (if they don’t immediately make the correction) or you, the preparer, for failure to comply with an information reporting requirement. Some errors are easier to fix than others. The IRS penalizes based on the size of business, type of failure and tardiness of filing. Avoid errors and potential penalties with these tips: File by the due date. Business tax returns are due based on your business type and most information forms are required to be e-filed or mailed by a specific date every year. Missing the due date for your business tax return will cost you. The penalty is five percent each month the return is late and can be a maximum of 25 percent. If you file more than 60 days after the due date, the minimum penalty is $135 or 100 percent of the tax return. For sole proprietors and single-member LLCs, penalties and fines are based on the amount underpaid or paid late and will not stop accruing interest until the balance is paid in full. → Takeaway: Don’t panic if you cannot pay the full amount of taxes you owe. Submit your return on time and pay at least 90 percent of the tax due to avoid a penalty. Even with an extension, you must estimate how much you owe, if anything, and send in that amount by the due date. Ensure correct spelling and Tax ID Number (TIN) The IRS penalizes for reporting incorrect taxpayer ID on information returns. If the (TIN) is incorrect or missing, the taxpayer is subject to backup withholding and you’ll get a backup withholding notice. → Takeaway: …
Continue Reading about 3 Tips to Avoid Penalties and Filing Errors →