Filing the corporate taxes of your business can be a tedious — even draining — process. Just seeing a good chunk of your income go not to your bank account, but to the Internal Revenue Service, is enough to make you curse the idea of taxation and wish you never had to deal with such bureaucracy. Hence, many companies seek various measures to avoid paying taxes or pay less tax.
One of the legal means to minimize tax to be paid is called tax planning, which involves using various accounting strategies in order to come up with the least possible amount of taxes to be paid. While this can very much help your business in Utah financially, it also poses a great risk if you are not sure what you are doing. This is because the Internal Revenue Service (IRS) imposes strict penalties if a business files a wrong tax return.
Hence, it is always best to consult a professional when doing tax planning. Various firms in Utah and the rest of the United States offer help to Certified Public Accountants and their clients to ensure that tax planning is done properly. This is especially beneficial to small businesses that frequently do not have the resources or experience to fully execute a tax plan.
Here is what can happen if you make a mistake when filing taxes for your business:
If an error in your tax return shows that you owe more tax
This could be one of the consequences of improper tax planning. The IRS may spot numerical errors in the way you declared your taxes, which resulted in a lower tax amount to be paid. In such cases, the IRS will charge you the remaining amount that you owe, along with a penalty for late payment. The penalty may range from 0.5 to 25 percent of the balance owed, which must be paid along with the balance.
If your tax return contains inaccuracies according to tax laws
If the errors in your tax returns were determined to be a result of negligence or ignorance of tax laws or in the accounting and bookkeeping processes, which then resulted in lower taxes paid, then there would be an additional penalty for negligence. The penalty for negligence is 20 percent of the balance owed, which must be paid in addition to the remaining tax amount owed and the penalty for late payment.
If you are found to have committed fraud or tax evasion
This is the worst case scenario that could happen in case of errors in filing tax returns. Tax fraud and tax evasion both refer to intentional attempts to under declare your taxes and misrepresent your financial standing in order to avoid paying the correct amount of taxes. Examples of practices that may be classified as tax fraud or evasion include overstating deductions and non-reporting of income. In cases of first-time offenses, civil fraud penalties, which can reach 75 percent of the amount owed, may be imposed. However, as these are criminal offenses, being found guilty can result in fines in the hundreds of thousands of dollars, as well as jail time.
By availing of the assistance that firms specializing in tax planning provide, you can minimize your taxes without facing stiff consequences. In such delicate matters, it is better to be safe than sorry, which is why you better fully understand what you are getting into before you go about trying to lessen your taxes.