Filing your tax returns as a small business owner for the first time is as exciting as it is overwhelming. You try your best to file the tax returns on time but you may likely miss some critical documents or make small yet avoidable errors while doing it last minute because of too many operational responsibilities.
The inability to file a required return can put you on the radar with the IRS, and eventually lead them to file a return for you – which means extra charges and penalties. You also need to be extra careful when it comes to preparing and filing late returns because they come under even greater scrutiny.
The best way to ensure you file tax returns for your LLC business accurately and punctually is to hire experts to do it for you, but you should know what the process looks like as well.
This is your ultimate, go-to guide for filing tax returns including tips for meeting the deadlines, and key considerations you should know as a first-time tax filer. The process is not as daunting as it seems and if you have the right team to support you, it’s even easier.
Without further ado, let’s dive into it.
Almost all businesses are required to file a tax return every year and the IRS keeps a meticulous check on those that need to file returns but haven’t. If you haven’t filed your tax returns on time, you can expect the IRS to pursue you with penalties or file the return on your behalf known as a substitute for return, but that comes without any credits or deductions in your favor.
This can be a major financial setback for your business because the longer you delay, the penalties keep getting higher. The minimum penalty is a little over $200 and the maximum is 25% of the amount you owe in taxes along with interest. That’s not all. You also owe a penalty for late payment, which varies from 0.5% to 25% of the unpaid taxes for each month.
The other financial disadvantage of not paying your taxes on time or filing tax returns is that it doesn’t work in your favor when you’re applying for a personal or a business loan. Not only does it make it difficult for you to get a loan, but it can also even disqualify you completely and this can set you back indefinitely from meeting your growth objectives.
If you don’t file your tax returns, because you think you’ve overpaid your taxes anyway, the IRS doesn’t allow you to claim a refund every time. They will consider the overpaid amount as a contribution on your behalf to the treasury so make sure you file the returns before three years.
When your taxes are overdue, the IRS sends you a notice, and failure to pay the owed amount in ten working days after receiving the notice results in a foreclosure issued on your property. They can also seize your personal and business assets. In some extreme cases where businesses have evaded tax payments for several years, and the amount owed has exceeded $53,000, the Secretary of State reserves the right to revoke your passport and even sentence you to jail for tax evasion purposes.
However, you are exempt from the penalties if you can justify late tax payments with a reasonable cause such as destruction of all financial records in case of natural disaster or a death in the family.
Preparing your tax returns is a time-consuming process and not something you should put off till the last minute. Irrespective of the number of returns you have to file, it’s better to get right on it as soon as possible so you can maintain a good position with the IRS.
Now that you know what the repercussions of failure to fill your taxes are, here’s a quick guide to acquaint you with the process.
Collect all the documents needed to file business tax returns
The first thing you should do is ask the IRS for a transcript or order the business account transcript to identify all the payments and credits posted on the IRS account for the tax year.
Collect all the information you need in one place from all your records and start to complete the return. A business income tax return requires the following items:
An employment tax return requires the following:
Not a lot of business owners know this, but you can always request more time to file the late returns, so you don’t receive unnecessary enforcement actions like levy, lien, and substitute for return.
Make sure you know if there are any special processing need for your return such as a date stamp or filing with an IRS compliance unit. In case of multiple overdue returns, the IRS requires you to file tax returns for the present year and the past 6 years.
Fill all the information and submit the documents to an appropriate IRS unit
Complete the business tax returns accurately and corroborate the income with the IRS transcripts and the tax payments. Access the Income Reporting Program document for this information by asking the IRS for your Employer Identification Number (EIN).
If you owe an unaffordable sum of money, you can request a payment arrangement that’s more convenient for you. You can even ask for penalty relief and penalty abatement.
Sole proprietors, and single-member LLC owners can use Form 4868 to file for an extension on tax returns, whereas corporations, LLCs, and partnerships can use Form 7004. Once your request is approved by the IRS, you won’t have to pay a penalty if you make the payment by:
Remember that the extension is for filing your tax returns, not paying them so make sure you’re paying them within the original date. For more information about tax deadlines, consult a tax professional as state and local deadlines for business locations may vary.
Are you struggling with meeting tax deadlines or didn’t have time to figure out how to file taxes for your LLC business? Don’t worry! Monily offers complete tax preparation services that help you manage tax risks and ensure the best possible tax outcome.
For more information, get in touch with us today.