Tax preparation can be challenging for a small business due to changing laws and confusing documents. When a business fails to complete taxes properly, an audit may be necessary. To prevent this from happening, it’s important to stay tax compliant. If you are a small business owner who does yearly taxes, here are three facts you should know.

A Guide to Tax Compliance for Business Owners

1. Underpaying Is Dangerous

When small businesses accept cash transactions that are not reported to the Internal Revenue Service (IRS), the likelihood of underpaying taxes grows. Additionally, businesses that don’t have an efficient expense-monitoring system are more likely to overestimate expenses while filing taxes. Even if these mistakes are not deliberately made, a business will still be penalized by the IRS. 

2. Penalties Add Up Quickly

The IRS charges penalty fees for a variety of reasons. The most common ones are failure to file and pay taxes before the due date, failure to pay the correct amount of taxes, and bounced checks. 

For late filing, the IRS charges fees equaling 5% of the unpaid taxes. While it may not seem like much, this fee can be charged for up to five months. On the other hand, failing to pay on time can rack up fees equaling to 1% of the total taxes due within 10 days of delinquency. This percentage can gradually rise to 25% if the amount is still not paid after 10 days.

3. Small Business Taxes Take Additional Time

While most large businesses use a professional Certified Public Accountant (CPA) for tax preparation, small business owners often attempt to do everything themselves. However, completing taxes for even a small business requires much more time and record-keeping than doing personal taxes.

According to the IRS, completing Form 1040 and submitting a return for a single taxpayer takes nine hours. If you are keeping records on multiple employees, their wages, and your earnings, record-keeping for taxes can take much longer. This is why even small business owners would benefit from hiring a professional tax preparer. 
 

If you are searching for a trusted CPA to assist you with tax preparation, contact Wilson, Rea, Beckel & Associates, CPAs, LLC in Pagosa Springs, CO. With over 16 years of experience, they are well versed in tax compliance for small businesses. They also provide services such as family financial planning and QuickBooks® training. For more information about how they can help you, visit their website. To speak with a professional, call (970) 731-1040 today.