What Are The Common Tax Problems For All Businesses And Individuals?
The beginning of April 2021 marks the final two weeks to pay all your estimated taxes. It also marks the two weeks before the April 15 deadline for all taxpayers to file their 2020 tax returns, except for individuals whose filing deadline was extended to May 17, 2021. Nevertheless, the few days left do not mean that everyone is almost ready to do it right with the IRS. Many people still struggle with several tax problems, especially if filing alone without a tax professional. Speaking of tax problems, you could hit a snag with your IRS (Federal) taxes, State taxes (local taxes) and have problems reporting and paying your sales tax. When I look at all this, I can’t help but think that we encounter tax problems because we don’t prepare well in advance. Therefore, I want you to read this article in preparation for the 2021 taxes that you will pay in 2022. It is how you give yourself the best chance against some common tax problems for both businesses and individuals.
Legislative problems
Admittedly, it’s now a couple of years since the Tax Cuts and Jobs Act went into full effect. Yet, many Americans still encounter problems implementing the changes it brought. As if that is not enough, we have a new administration now. It already has signed the American Rescue Plan Act of 2021 on top of changes that were already in place as a response to coronavirus covid19. This affects taxes in many ways. It makes legislative changes that affect tax law one of the biggest tax problems in recent years. Speaking of legislation, President Biden is proposing a massive infrastructure plan. And guess what, its funding is largely dependent on taxes. He recently admitted that for his plan to work, the IRS needs to be fully funded so that it can crack on businesses that are evading taxes. Therefore, going forward, if his plans succeed, we are looking at the likelihood of increased audits and notices. As a taxpayer, you must be worried about how you are going to emerge unscathed from all this.
Dealing with a tax audit
Nevertheless, your best option to avoid being picked for audits is to first have a structure. Businesses with a structure give a good picture to the IRS. How you run your affairs communicates how organized your finances are. And, if you are organized, you probably have your bookkeeping and accounting in order. You probably keep all your tax documents intact and even hire a tax professional. Therefore, the IRS will unlikely audit you. However, if it happens that you are picked for an audit, hire a tax professional immediately. You want them to immediately access your tax record and assess how they can help you explain your tax issues away. Panic is never the answer, nor is ignoring the IRS tax notices.
Making errors on tax forms
There is a reason why it is encouraged to file taxes electronically. Paper returns are more likely to contain errors than electronic filing. Each year, more than 20% of returns filed using paper filing contain mistakes. Yet those who e-file their taxes are found to have a mere 0.5% mistake rate. Popular errors on tax forms are incorrect Social Security numbers, wrong bank account information (including erroneous routing numbers), lack of proper signatures, and missing tax information.
We spoke about other tax problems in the previous installments of the common tax problems series. These include the blurred lines between tax avoidance and tax evasion and underpayment of personal income tax by business owners. Such problems could land you an IRS audit. Especially now when Biden wants to fund it so that it is more resourced to scrutinize business taxes more. Other problems also include overstating business losses that make your return look suspicious.
In conclusion, don’t be in the habit of ignoring that feeling that you have made a mistake on your return. Once you realize your mistake, file an amended return. Or, to avoid such mistakes altogether, hire a tax professional to have a professional eye look over your return. In that regard, you can book an appointment through our office to talk to me. I have helped thousands of small businesses and individuals file a clean return. If you received an audit notice, I also represent you in an IRS audit. In short, my job is to make your life much easier. If you reach out, I will gladly assist with your taxes.
People have also asked this
1. How Businesses Get in Trouble with Taxes?
A business can get in trouble with taxes in many ways. First, a lack of proper tax planning can result in an incomplete return being filed. Secondly, if businesses fail to report their incomes and expenses properly (backed by paperwork), that might result in trouble with the IRS.
2. How do payroll tax problems happen?
Payroll tax problems arise when an employer cannot withhold the right amount of taxes from their employees. Even if they do withhold, some employers don’t know how to, or are late in submitting these withheld amounts to the IRS.
3. What is Income Tax Fraud?
Income tax fraud is committed when you submit fraudulent invoices to reduce your tax bill or to receive refunds from the IRS. More so, if you intentionally fail to pay taxes owed, willfully fail to file a federal income tax return, and fail to report all income, you are committing income tax fraud.
4. How big is the problem of tax evasion?
In the U.S.A, tax evasion is an annual problem. The IRS once found out that about one out of every six dollars owed in federal taxes is not paid. Small businesses and high-income individuals are at the forefront of understating their income in order to evade taxes. But these acts are against the law, and can land you in trouble.
5. Is it Negligence or Income Tax Fraud?
In many cases, it is simply tax fraud. Generally, people think that by paying taxes, the IRS is taking the money it doesn’t deserve from them. However, there is a small percentage that is attributable to negligence, especially with small businesses that don’t track their expenses and report all income as it comes in.
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