Tax compliance can be complicated and would often give businesses anxiety. Late payments, underpaying, or failure to pay taxes would always result in consequences. Also, the wrong structure of a company and expired provisions put the business in danger.
Here are some compliance problems businesses are likely to face when they don’t adhere to tax regulations.
Business Compliance Costs
Compliance costs are the direct costs a business pays the government for operating various tasks regarding the state regulations. Some states would have higher compliance costs, while some exempt small businesses from paying the costs.
But in some cases, these costs hit the small businesses harder than they do to established firms. According to the Internal Revenue Service (IRS), companies with under $1 million in revenues bear up to two-thirds of the business compliance costs.
To find effective ways to handle business tax law compliance, every business must check with their state and international law to ensure they operate under every guideline. This way, they would tackle and win all their compliance battles.
Every business that has employed traditional workers must comply with various employment tax concerns. For instance, according to the IRS, employers must withhold federal income tax from their employees’ wages. However, this must be appropriately be conducted.
Employers must also report the wages, tips, and compensations given to employees at the end of the year and submit the report to Social Security Administration. Amongst the employee taxes to include in the report include social security, federal income, and medical taxes.
An employer must also pay the above taxes on behalf of their employees. Failure to report or submit such tax details would lead to a serious audit. The worst is that the business would face severe legal and financial issues like a fine of $6 billion laid on employers found guilty of employment taxes.
Underpaying or failure to pay tax in time would bring several consequences, especially the small business that operates in cash. For instance, the company would be forced to pay for underpayment penalty.
This also applies when the business withholds or doesn’t report their wages to pay fewer taxes. Whether intentional or unintentional, such acts would call for penalties. So, keep in touch with tax consulting services experts to help calculate the ideal compliance costs.
Business Structure and Organization
Business structures determine the kind of tax to file. So, when starting a business, first choose the desired entity to establish. In other words, a sole proprietor may not be liable for the same type of taxes corporations, partnerships, and Limited Liability Company pays.
So, consider the business structure and weigh out the legal and tax concerns before deciding on one type. Failure to check on the structure would lead to tax complications related to the structure assumed.
Businesses accustomed to various credits and deductions must now be keen because they might be penalized for living in the past. Or for continuing to operate under expired benefits. For instance, the end of 2019 saw a lot of specific opportunities like employer credit for medical leave and paid family, new market tax credit and work opportunity credits, among others.
Therefore, the business must constantly stay updated on the new tax changes not to get penalized on expired provisions.
One of the safest ways to be friends with the IRS is to pay all the business required taxes in time. Therefore, check and comply with every calendar year’s tax payment deadlines. Also, consider any other state changes, especially with different states imposing their requirements.
Accrual and Cash Methods of Reporting
Business timing matters most, especially when reporting income and corporate taxes. So, choose one account and stick to it. Reporting in different formats would raise some questions.
Depending on the conditions, the IRS allows businesses to report cash as they receive the expense and payments or report both once they are incurred regardless of when money comes in or goes out. So, stick to one method of filing taxes, and otherwise, the business is bound to be penalized.
For quality and various tax consulting services, businesses need to contact tax experts to guide and help direct every operation from business compliance and structure to expiring provisions, timely filing and passed provisions. Also, ensure to stay updated on any tax changes to avoid penalties associated with expired provisions.