19 Sep 2020
6 minutes read
10 Commons Tax Errors That Might Get You In Trouble With The IRS
Taxes are a lifesaver for the government while it may serve as a burden to businesses. They lessen your profits and may ask you to pay more when there is something wrong with your tax return.
Every year you are required to submit a tax report to the IRS. If you made an error on your tax return, they will impose a fine plus interest every month an error goes uncorrected.
Normally, the IRS begins by analyzing your income and checks whether or not it is entered correctly on your return. If they find any mistake, they will send you a letter bill showing the correct taxable amount, and state any corresponding penalties.
Errors like this can be easily avoided by getting help from a tax professional. Not only would it save you from being fined, but it may also save you from IRS audits.
Knowing the common errors that might be on your tax return, will help you avoid them. It’s also a plus with the IRS if your tax returns are filed without any discrepancies.
Fines Imposed By The IRS
Errors on your tax return will prolong the process, even if you pay them on time. And if the IRD found out that you ow more than what you’ve paid, they will impose fines on top of the additional tax.
The normal fine for errors on your tax return is 0.5% per month. But, the rate can even increase up to 25% if the mistake is recognized as a fraud or an act of negligence.
If your submitted tax return did not match the taxable income obtained from your books of accounts, the excess value will then be recorded as an unpaid tax due.
Penalty Rates For Negligence
If you did not take proper measures to comply with the tax laws in filing your tax returns, the IRS will give a harsher penalty.
The IRS will take a look at your financial records in cases of an audit. If they finalized that there are non-inclusion on your tax returns, fraudulent transactions, criminal and/or civil charges might be brought against you.
A penalty rate of 20% more of the total amount plus tax is implemented for the underpayment of tax.
The IRS imposes interest on your taxable income when you make errors on your tax return.
If you paid your taxes already and made a mistake, the IRS will apply an interest of 3% every quarter, or 1% for every month that the balance remains unsettled.
Common Tax Return Errors
This is one of the most common errors in your tax return. This mistake happens when the IRS notices that the income from other sources does not match the income on your tax return.
They will recompute the amount due once they see this error. Upon knowing the actual value, they will send you a bill showing the appropriate tax, interest, and penalties.
You must review the bill upon receiving it. Just to make sure that there are no errors from the IRS in computing the taxable amount.
All sole proprietors who earn a financial gain are required to file a Schedule C Form. The IRS will impose a penalty if you fail to do so.
If you’re income every year is more than $400, it is a requirement to pass your Schedule C with your Form 1040. These forms include the amount of income or loss you incur annually.
You also need to attach these forms in front of your tax return.
For example, you must attach your W-2 forms and their relevant schedules if you are to withhold your taxes.
If you are eligible for homebuyer’s credit or adoption credit, you should affix the records that prove your eligibility.
Another common error on your tax return is to file them on time thinking that you have already satisfied your tax obligations.
If you are earning profit by running a small business, IRS requires you to pass estimated tax returns quarterly.
This can be computed by deducting your withholding taxes and credits to the estimated amount of tax due.
If the IRS processed your underpaid estimated taxes, you’ll have penalties.
You may prevent this from happening if these are below $1,000 per year. And if you already paid for at least 90% of your taxes for a particular year.
It is a requirement for small businesses to submit a complete book of their accounts. These include a complete report of your income yield, medical expenses, and depreciation of equipment and vehicles.
If your business is a partnership, you will be required to pass Form 1065. You will be fined $195 per month for each partner if your records are not complete.
Don’t worry the IRS will allow you to check your information if they see an error before the fine is assessed.
It is required by the IRS to input your social security numbers correctly because its one of their basis when assessing your tax obligations.
If you make any error on your return relating to this, they will ask you to refile everything.
This is one of the most frustrating errors on your tax return.
To review your social security number and its exactness, the IRS uses the last four letters of your surname.
If your name is misspelled, your return will be rejected. Once the errors in your tax return are identified, they will ask you to resubmit records.
It is important to know the right filing status. Since it determines the amount of tax you should pay, filing forms you need to submit. It is also the basis for paying lower tax rates.
Appropriate filing statuses are single, married filing separately, married filing jointly, head of household, or qualifying widower.
Make sure that you only check one filing status and check the appropriate exemption boxes to you.
It’s important to assess your return before filing. Especially, if you are submitting them electronically always make sure that they are complete.
If you are using tax software, always flag common errors. This will notify you if you forget an important detail.
If you are eligible for a tax refund, the IRS will give you a refund based On the bank account on your return.
Errors on your tax return relating to your accounts may cause a delay in receiving your money.
Always remember to indicate the right details to receive them on time.
The IRS processes over millions of tax returns annually.
Failure to comply with the due dates will make you suffer from financial consequences.
If you are unable to pass your returns on time, the IRS still gives you a chance to file for an extension.
Fill out Form 4868 to request an extension.
However, upon filing, make sure not to forget that the filing schedule is extended but the due date to pay taxes remains.
If you don’t have any accounting background, filing your tax returns becomes a difficult task. It may cause errors on your tax return which could cause you to incur penalty fees and interest.
Hiring a tax professional will help you comply with your tax duties and maintain good standing with the IRS.
Here at DD Business Analyst, we have years of combined experience in tax filing. Our team will ensure an error-free tax filing and on-time submissions.
We have served several clients who have gained from our services.
With our help, you don’t need to worry about errors in your tax returns. Our talented people have the experience to prove that you are in the right hands.