It is easy for a small business owner to fall into the trap of IRS penalties. The adage that “ignorance is no excuse” is an unfortunate truism for owners of small enterprises, many of whom enter into a business venture without a clear understanding of the complexities of business taxes. A Virginia tax-planning lawyer can provide strategies and advice for the type of business you enter into.
Common Tax Penalties
A common mistake small business owners make is not having a Virginia tax-planning lawyer work with them from the outset. This is especially damaging to a fledgling business that is struggling to break even; tax penalties can be enormous, and will eat away at any profits your company might have otherwise enjoyed.
- Late Filing: This penalty amounts to 5% per month of the total tax that is owed. Over six months, this is a full 30%. If you are unable to pay your taxes, at least file on time. You can then request to enter into an installment agreement.
- Late Payment: While this penalty is .5% per month for the amount your business owes, this can quickly cancel out any profits you may have. The total penalty can ultimately be 25% of the unpaid tax.
- Estimated Tax Underpayment: This is a very common penalty for those who are self-employed. You must pay at least 90% of the amount you will owe quarterly.
- Inaccuracy: Amounting to as much as 20% of your total tax liability, this penalty is generally assessed after an audit finds deductions that cannot be substantiated or the total income was not reported.
- Fraud: This penalty is relatively rare, for the IRS must prove that you had fraudulent intent on your return. However, the penalties are great—up to 75%.
- Tax Evasion: One usually associates tax evasion with cases that seem larger than life, such as mafia leaders. This is because the cost of proving that you purposefully evaded paying taxes can be prohibitive; therefore, the IRS generally does not pursue small business owners for tax evasion. However, the penalties are great—up to $500,000 and 5 years in federal prison.
Lacking an understanding of tax laws can kill your small business. Unfortunately, the intricacies of the tax code generally require a professional understanding, and you cannot simply claim ignorance. The key to avoiding these damaging tax penalties is planning. It is imperative that you do so with a CPA or Virginia tax planning lawyer to make sure that your business is abiding by tax laws.
Understanding Common Penalties
While the goal is to avoid tax penalties altogether, it is useful to gain an understanding of how the IRS imposes them. The IRS is ruthless in imposing penalties, often stacking them upon each other. The result can sometimes mean a tax bill 50% higher than the principal. It is far better to work with a Virginia business attorney to avoid any problems in the first place.
For Further Information
For further information on tax penalties and IRS issues related to small businesses, speak with a Virginia business attorney. Call Sodowsky Law Firm, P.C.