Small Business Tax Penalties

It is easy for a small business owner to fall into the trap of IRS penalties. The old 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 Boston 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 Boston 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.

The key to avoiding these damaging tax penalties is planning. It is imperative that you do so with a CPA or Boston tax planning lawyer.

For Further Assistance

If you would like to discuss strategies with a Boston tax planning lawyer, David Ionson will be happy to meet with you. Please call (781) 674-2562 to make an appointment for an initial consultation.

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