Late Filing Penalties
While filing your taxes may not be the most fun thing you will ever do in 2019, it is best to complete the task as soon as possible. If you procrastinate until the last minute, you may find yourself facing tight deadlines, which if not met can result in costly penalties. As an example, if your business is classified as an S Corporation or Partnership, the late filing penalty is done so as a dollar amount per-owner per-month. For 2019, this amount is $200 per owner for each month the tax returns are late, which as you can see can add up in a hurry. In addition to these penalties, it’s important to note that while April 15 is the standard tax filing deadline for individuals, small businesses have a deadline of March 15, so it’s best to get busy as soon as possible.
Estimated Tax Penalties
While it can be difficult to accurately estimate how much your business will owe in taxes, failing to so can prove even more costly in the long run. If you wind up underestimating what you owe, you’ll be facing additional interest charges from Uncle Sam. Based on current guidelines, which can be adjusted on a quarterly basis, this penalty stands at four percent. To avoid this problem, most tax experts recommend business owners simply estimate their 2019 taxes at the same amount they paid in 2018.
Failing to File W-2 Forms
Since each employee of your business must be issued a W-2 form, it is crucial you remember to file a form for each employee. If you fail to do so, expect the IRS to be standing around with their hand out, waiting for your contribution. As the current guidelines stand for 2019, if you file the elusive W-2 forms within 30 days of the January 31 deadline, your penalty will be $50 per W-2. However, if you file between February 1-August 17, the fine doubles to $100 per form. And if you really procrastinate and file the W-2 forms after August 17, be prepared to pay $260 per form. As you can see, it will be much simpler to work with a seasoned tax professional to make sure each and every employee on your roster has a W-2 form that has been filed.
Trust Fund Penalties
Considered one of the costliest penalties enforced by the IRS, trust fund penalties can be a tremendous headache to any small business owner. According to IRS guidelines, as a business owner you are required to deposit withholding amounts from your employees with the United States Treasury. If you fail to do so, even through no fault of your own, be prepared to pay significant penalties. In these situations, you will be held personally liable for all deposits that have not been made, up to 100 percent of the amount of the deposits. To avoid facing these substantial penalties that could possibly put you and your business through severe financial hardship, always verify these deposits are made correctly and on time, especially if you use a third-party payroll company.
While it stands to reason that the tax returns for your business must contain accurate information, there are additional IRS penalties that can be levied against you and your business, especially if the IRS determines the income and expenses on your returns are grossly underestimated based on a blatant disregard for its rules and regulations. To ensure Uncle Sam does not throw a temper tantrum at your expense, make sure you receive tax advice from a knowledgeable and experienced tax expert who understands the ins and outs of working with small businesses. Otherwise, expect to be hit with a 20 percent penalty for underpayment.
Just as it is important you file the necessary W-2 forms for your employees on time, you must also do the same for 1099 forms you use with any independent contractors to whom you have paid at least $600 over the past year. If you fail to file these forms in the proper manner, you can expect the same types of penalties you’ll incur for failing to file W-2 forms. In fact, the IRS is so concerned about your possibly forgetting to do so, they have made the fines the same for both W-2 and 1099 late filings. Therefore, if you remember from earlier, you can find yourself paying anywhere from $50-$260 per form that is not filed. To keep this from happening, be sure you remember all independent contractors with whom you did business over the past year, since forgetting them will take plenty of money out of your pocket.
Excessive Contribution Penalties
While it seems logical that the IRS will penalize you and your business for failing to contribute enough to employee retirement plans, you can also find yourself in trouble with Uncle Sam if you make excessive contributions. But while it seems as if you cannot win any way you go on this issue, all hope is not lost. Though the penalty for making excessive contributions to employee retirement funds is currently six percent, and will be applied to you each year until the error is corrected, getting solid tax advice from the outset of tax season will help you avoid this expensive mishap.
Tax Fraud Penalty
If there is one thing that will get Uncle Sam and the IRS mad at you in a hurry, it is having them believe you committed tax fraud. If this is the case, not only will you be facing harsh financial penalties, but also possible criminal charges against you and your business. Needless to say, this is one scenario you want to avoid at all costs. However, if the worst happens and the IRS determines you did indeed commit tax fraud, expect to be hit with a penalty of 75% on your tax return, which could result in thousands or even millions of extra dollars you will be expected to pay. Therefore, while it may seem as if everyone fudges a bit on their tax returns, it is best to file returns that are true and accurate to the best of your knowledge. Along with getting the best possible individual to prepare your taxes, always have the services of a tax attorney nearby as well. By doing so, you can be sure any and all questions you may have can get answered.
While it appears as if the IRS is simply waiting around for you to make one error after another on your taxes, the fact is virtually all these penalties can be avoided rather easily. By putting your trust in a seasoned tax professional, staying up-to-date on the latest changes, and being proactive throughout the year, the 2019 tax season can come and go without any unexpected and costly surprises.