If you don't pay business taxes,
Uncle Sam will want to know why
July 29, 1999 -- Make no mistake about it, the
IRS is serious about business owners paying their fair share in
taxes. And it doesn't hesitate to use the possibility of penalties
to substantiate this intent.
This tax tip sums up actions a business owner
could take that would be likely to result in a penalty by the IRS.
These actions tend to involve failing to file returns or pay taxes
as required. In addition to the penalties detailed here, business
owners should also be aware that the IRS does occasionally impose
criminal penalties when it can prove that a business owner has intentionally
failed to file a return, evaded taxes or made a false statement.
to file tax returns
A business owner who doesn't file a tax return by the due date risks
paying a penalty. Whatever tax is due on the due date will determine
the amount of the penalty. Business owners should consult the instructions
on their respective tax returns for more information.
to pay taxes
A business owner who doesn't pay taxes by the due date has to
pay a penalty for each month, or part of a month, that these taxes
remain due. This penalty can't exceed 25 percent of the unpaid tax.
to withhold, deposit or pay taxes
What happens when a business owner fails to withhold income,
Social Security or Medicare taxes from employees, or withholds taxes
but doesn't deposit them or pay them to the IRS? The IRS could penalize
him for the unpaid tax, plus charge interest. Depositing the taxes
late is another way to risk a penalty. For more information, see
to follow information reporting requirements
The following penalties apply to business owners who are required
to file information returns. For more, see the Instructions for
Forms 1099, 1098, 5498, and W-2G.
- Failure to file information returns. Some
business owners don't file their information returns properly.
The IRS will penalize an owner who doesn't file information returns
by the due date. Reporting incorrect information or omitting required
information can also result in a penalty.
- Failure to furnish correct payee statements.
Under current IRS law, any business owner who withholds Federal
income or Social Security taxes from their employees' wages must
furnish a Form W-2 to each employee. The form states the names
of the employer and employee; the amount of wages subject to income
tax withholding and the amount withheld; the amount of FICA wages
and FICA tax withheld; and the amount, if any, of advance payment
of the earned income credit. Generally, business owners should
furnish W-2 Forms for a calendar year no later than Jan. 31 of
the following year.
- If a business owner doesn't furnish a required
statement to a payee by the required date, the IRS can penalize
him. The IRS may also penalize businesses for furnishing forms
that omit required information or report incorrect information.
What if a business owner knows he has made a tax mistake likely
to result in a penalty? First, don't despair. The good news is that
there are exceptions to these penalties. In fact, the IRS may waive
them if the business owner can prove the mistakes resulted from
a reasonable cause instead of willful neglect.
And, on a small number of information returns,
correcting the errors by Aug. 1 of the year the returns are due
will eliminate penalties for failing to include all the required
information or for including incorrect information. What does the
IRS consider small? The number of returns can't exceed the greater
of 10 forms or .5 percent of the total number of returns the business
owner is required to file for the year.
-- Posted July 29, 1999