Getting your tax return right the first time is something all
business owners and individuals strive to achieve. However, an
incredibly complex and ever-changing tax system means we all make
mistakes, even the IRS!
According to this MSN Money article - "Don’t panic if the IRS sends you a
letter" - the IRS sends more than one million letters to people
each year simply because they forgot to sign their returns.
While it’s impossible to address the countless number of human and
computer errors that can impact business taxes, this article sheds some
light on how to correct common tax mistakes, while providing guidance
for handling tax disputes and tips on preventing an IRS audit.
Taking Care of Mistakes Before the IRS Contacts You
If you know that you have omitted information from your tax return,
made an error, or missed a filing deadline, it’s always best to take
care of it before receiving a notice from the IRS - which can result in
unnecessary interest, penalties and other complications.
Here is some guidance on common business tax errors and the process
of fixing them:
- Correct Information about Total Earnings and Withholdings - To
correct any mistaken information filed about total employee earnings
and withholding for the year, you’ll need to complete Forms W-2C and
W-3C. This can be done online at the Social Security Administration Web
site here.
- Overpayment or Underpayment of Employment Taxes - If
you have made an error that has led to overpayment or underpayment of
employment taxes you will need to file an amended employment tax form.
The IRS provides links to the appropriate forms for you needs here. Read more about your employment tax obligations from Business.gov.
- Individual Tax Return Errors - Any mistakes on your
individual tax return should be corrected using Form 1040X. If you owe tax, send the amount owed with
this form to stop penalties and interest from accruing on the
additional tax owed.
- Mistakes on Partnership Returns - If you made a
mistake on your business partnership return, check the box for "amended
return" on Form 1065 and give each partner a
copy of amended Schedule K-1.
- Mistakes on S Corporation Income Tax Returns - To
correct an error on a previously filed Form 1120S, file an amended form by checking "amended return" on page 1 and
follow the instructions. Then provide each shareholder a copy of the
amended Schedule K-1.
- Mistakes on Corporation Returns - Use Form 1120X, and send any owed tax with the form.
- Corrections on “Information” Forms 1099 and 1098 - If
you have made a mistake on an information return (always
prefaced with 1099 or 1098) just refer to the instructions that come
with the forms.
Don’t Ignore Notices from the IRS
If you do receive a notice from the IRS, whether it’s requesting
payment or seeking additional information regarding your business tax
return - open it and act on it. Putting off contacting the IRS,
especially in the case of notices requesting payment, can increase the
amount you owe because penalties and interest keep accruing.
Whether or not you agree with the notice, call or write to the
contact person listed or visit your local IRS office before the deadline. There is a also
additional IRS contact information on the IRS
web site.
Avoid a Tax Audit
Although less than 1% of taxpayers are selected for a tax audit,
business filings that report year-after-year losses, large charitable
contributions, or claim large tax deductions may raise red flags for the
IRS. Read "When Avoiding a Tax Audit - the Best
Offense is a Good Defense" for guidance on how to file your tax
return in a way that minimizes your chances of getting audited.
Appeal a Tax Dispute
If you are unable to resolve tax mistakes with the IRS or dispute how
the IRS has determined your tax status, you can file an appeal with the
IRS Appeals office. The Appeals process operates independently of any
other IRS office and is intended to be a fair and impartial way to
settle tax disagreements without you having to go to the Courts for a
formal trial. This Appeals Guide from the IRS explains
what the Appeals process can do for you and can help you determine if
it’s right for you.
If you feel that you are being unfairly audited, over-regulated or
penalized by the IRS or any other federal, state or local government
agency you can file a complaint with a small business Ombudsman. Read
more about the process and what it can do to help you here: "Is the Government Regulating You
Unfairly? - Contact an Ombudsman".
Got small business tax questions? Ask your tax questions in the Business.gov
Community.
Resources
- Small Business and Self-Employed Tax
Center
- Business.gov Small Business Taxes
- Free Small Business Tax Advice from
Uncle Sam
- IRS.gov Undergoes a Quiet Evolutions -
Revealing Invaluable Online Tax Tools for Small Business
- Tax Preparation - 3 Essential Online Tax
Resources to Add to Your Toolkit
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