Business

What Happens If Your Business Taxes Are Incorrect?

Navigating the labyrinth of federal and state tax forms is a tricky business. It’s no wonder that many of us are willing to pay a professional (accountants, financial planners, etc.) to fill in our tax returns. In 2016, the most recent year for which data is available, 53.5% of taxpayers used a professional tax preparer, according to the IRS.

Yet some filers find that professionals can make mistakes, too. And when the pros mess up, the consequences can be terrible for you, not for them. You can lose deductions and credits you’re eligible for, meaning that you pay more tax than you owe or miss out on a refund. Worse, you could get a refund that you’re not entitled to receive. Sooner or later, the IRS will come calling to claw it back.

Source: entrepreneur.com

Who Are The Professional Tax Preparers?

Part of the problem lies in the relatively lax rules regarding who’s allowed to prepare a return for someone else.

Although we usually associate the job with accountants, the fact is that, in most of the U.S., anyone can obtain a preparer tax identification number from the IRS and start taking on clients. Few states require a test or ongoing education before someone can hang up a shingle.

Now, some professionals, including chartered accountants, tax lawyers, and enrolled agents, are highly qualified to do returns and must comply with several government regulations. But most independent tax preparers face little oversight, who make up the lion’s share of the market.

Some taxpayers have been going to the same independent tax preparer for years with high confidence. But given the current system, it’s easy to choose a preparer who isn’t qualified or, worse, will intentionally manipulate your return to generate a higher fee.

Fixing Errors On Filed Returns

If the error seems to result from an honest mistake, you can ask your preparer to take the necessary corrective steps, including filing an amended return.

When the mistake results in fees or penalties, the service provider will often compensate the customer directly to smooth things. Others may offer to contact the IRS on your behalf to negotiate forgiveness of the error or reduce the penalties, but not all preparers have the credentials to do so.

Should you suspect misconduct from your preparer, you need to take a different tack. Specific forms exist, available for download from the IRS website, that you will need to fill out and mail or fax using the contact information on the form.

Form 14157 (“Complaint: Tax Return Preparer”) on the IRS website deals with preparer malfeasance. If the error affects your tax return or refund, you’ll also need to complete Form 14157-A (“Tax Return Preparer Fraud or Misconduct Affidavit”).

If you received a notice from the IRS about a problem with your return, mail the forms with copies of any supporting documentation to the address shown in the letter. If you did not get a notice, you should send it to the address where you sent your Form 1040.

The IRS will conduct an investigation. It could rescind the individual’s preparer tax identification number if it finds intentional wrongdoing. Licensed preparers may also face action from their state’s regulatory body.

In a worst-case scenario, you may have to take the matter to court to get relief from the costs of the error. But that means incurring substantial legal fees, not to mention the loss of time. Going to court should be your last resort for dealing with an inaccurate tax return.

Source: patriotsoftware.com

Avoiding The Bad Apples

Research candidates before selecting one to avoid having these sorts of problems with a tax preparer. If possible, get referrals from people you know who can vouch for their abilities and ethics. In addition, the IRS offers a directory where you can look up professionals with specific credentials, such as attorneys and certified public accountants.

And keep in mind that just because you’re hiring someone else to do most of the numbers-crunching and box-checking, it doesn’t mean you should take a hands-off approach to your tax return. Ultimately, it’s your responsibility—and you’re on the hook for any taxes and penalties arising from an inaccurate return. Make sure you review everything carefully, from the figures to the particular forms, before signing your name on that dotted line.

You May Face A Penalty

If you forgot to report income, such as that from a side hustle, you’ll likely need to file an amended return and pay.

It would help if you planned to pay the taxes on that unreported income before the April 15 due date. If you don’t, you will owe interest on the outstanding balance. You may also face a late filing penalty.

You can file an extension, but keep in mind that doesn’t extend the time to pay. You’ll need to estimate what you owe and send it to the IRS before your filing deadline. And it’s essential that your estimate be as accurate as possible. Get the best corporate tax accountant Ottawa at smithandwestcpa.com.

Source: freshbooks.com

Everything Goes Through Snail Mail

Note that the IRS doesn’t accept amended returns electronically. You’ll need to mail in a paper form to correct any errors.

Taxpayers can’t file amended returns electronically and should mail Form 1040X to the address listed in the instructions.

The upside is that if the IRS catches the mistake first and you receive a letter or a notice about it, it may not be necessary to prepare an amended return. Discrepancies can possibly be worked out with the IRS. If you need to pay more, you can agree with the notice and pay in response to the information rather than amending it.

You can go back three years to amend your taxes if you think you left something out of the previous year’s tax returns. Remember that if you need to correct mistakes going back multiple years, you’ll have to use separate amended returns for each year. Every year should be done on a particular form and mailed in a separate envelope.

Move fast to correct your return and file a complaint if you have to!

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