What Are Some Common Tax Penalties for Business Owners?

Louisville is not just a great place to live but also an excellent choice if you want to do some business. But what you need to be more conscious of are penalties. It is often the case that business owners get penalties for failing to comply with state laws, which may lead to losses that could have been easily avoided. 

A great way to do that is by hiring a tax advisor in Louisville, KY. From incomplete tax returns to missed deadlines, there are numerous ways you can get penalties as a business owner in Louisville. Some common reasons may include:

  • Under-withholding.

It is possible that you are underestimating your tax liabilities, and you may end up withholding less tax than what is required or necessary without even knowing. And this may get you a penalty at the end of your tax year.

  • Personal Retirement Account Withdrawals.

Business owners often look for funds or capital to invest in their business and for its expansion, and they may see personal retirement savings as a source for that. However, those funds are meant solely for retirement purposes, and withdrawing them prematurely before a certain age will incur penalties.

  • Income fluctuations.

It is quite common for businesses, especially when they are in their early stages or when the market is severely volatile (such as when we were suffering from a global pandemic a few years ago), to have income fluctuations. This may lead you to underestimate your taxes when you are paying your quarterly installments, which often results in penalties for underpayment.

  • Discrepancies in tax return filings.

If there is any sort of discrepancy in your tax return filings, it can lead to an IRS audit. Its consequences depend upon the severity of your case; they can range from penalties to even criminal charges.

  • Not applying deductions.

Many business owners are not aware of all the possible deductions that they can take advantage of. For instance, there are some significant tax advantages on equipment or machinery that you buy for the purpose of research and development and manufacturing. Unawareness of such deductions will lead to incurring unnecessary tax expenses, and that is like a self-imposed penalty.

What should you do?

Many business owners consider getting a qualified professional on board expensive, so they avoid hiring them to save some costs. Still, when you look in the long run, as your business expands, the whole process of tax filing becomes more complex, and it gets hard to keep track all by yourself. 

The possibility of making mistakes increases significantly, which may lead to penalties and missing out on possible deductions. The overall loss is high compared to the hiring cost of a professional. Thus, you should consult with a tax advisor.

Leave a Reply