Small Business Taxes Made Easy: Your Step-by-Step Guide

Small business taxes are often overlooked as there are so many aspects to take into consideration. If you are a business owner, check out this step-by-step guide to understanding business taxes.

Do you run a business, or are you thinking of setting up a business for yourself for the first time? Then you need to take your tax responsibilities seriously. Employers and business owners do not have anyone to withhold taxes for them – they need to count their profits and make their estimated payments of their own accord, on-time, every time.

However, paying your taxes as a business owner isn’t very cut and dry. You will be paying different amounts and will need to pay attention to different taxes depending on what kind of a business you’re running, the business structure your company has taken on, and the number of people you employ, among other factors.

 

What Small Business Taxes Are You Paying?

The big question is pretty simple, actually: what do I owe the government, and when?

But to answer that, we need to take a look at the factors that state and federal tax authorities use to determine what kind of taxes you need to pay.

 

Small Business Taxes 101

Before we go over the biggest factors affecting your tax liability, we need to figure out what taxes businesses usually must pay. If you run a business, you will most definitely need to work with a CPA or a tax professional if you want to not only stay on top of all of your tax liabilities but manage your taxes as efficiently as possible as well.

You can deal with it all on your own but note that this will be a massive time sink you could otherwise invest back into your own business, and other priorities.

Taxes to worry about as a small business owner include:

Income tax –

Business owners pay income taxes, just like employees do. The difference is that your income tax will either be represented by the company’s profits (for sole proprietorships and partnerships) or the salary paid out to you (for corporations and LLCs).

Self-employment tax –

Self-employment taxes represent the amount you need to pay for Medicare and social security. This is about 15.3 percent of your net income for the year.

Payroll tax –

If you employ people, you will need to withhold income taxes, Medicare, and social security from your employees paychecks as well.

Excise tax –

Companies in the business of manufacturing and certain industries need to pay excise taxes. Common examples include airline tickets, heavy equipment, tractors, tires, tobacco, and fuel.

Sales tax –

Aside from excise taxes, businesses that physically sell products need to pay sales tax. Some states also require businesses to pay sales tax on services performed.

Property tax –

If you own an office space, manufacturing space, hangar, or any other type of commercial property, then the property tax on that space also counts as a business tax. Again, both the IRS and state tax authorities can levy this tax on you.

While business owners are generally going to be more preoccupied with their taxes than the average employee, there are still distinct tax advantages to running a business of your own versus being on payroll. Business owners can issue far more tax write-offs than employees. Going golfing with a client? It’s a business expense. Taking a long trip across the country for a two-day conference? Lots of business expenses.

 

Determining Your Business Structure

Your business structure can substantially affect your tax liability. Generally, a business can be classified as one of four different legal entities:

 

State Business Taxes

Once you’ve figured out your ideal structure, the next big factor is the state your business is based in. Federal and state business taxes are separate, and you have the most flexibility to affect your tax liability by choosing what state to base your business in.

Some states are explicitly business-friendly, with lower income and business taxes. Others are less friendly. Business-friendly states include Florida, Nevada, Utah, and others.

Differences can include whether a state has a business income tax or a corporate tax, whether a state has a sales tax, or whether a state has commercial property taxes.

 

Work With a Professional

At the end of the day, small business taxes can get very complicated very quickly. You may be paying completely different rates and taxes from your business owner peers depending on what you’re selling, the structure of your business, and the number of employees working under you.

Understanding what you need to pay and when is crucial, but it’s still beneficial to get a tax professional or certifiable accountant to work with you.

Not only can they help you navigate the waters of the IRS and state tax authorities, but they can give you expert advice on how to minimize your tax liability, cut down on unnecessary tax costs, and avoid tax debt.

Most crucially, working with a tax professional can help you accurately calculate and predict your estimated taxes, schedule your tax payments, and avoid ever having the tax man at your door uninvited.

We at Rush Tax Resolution help startups and established companies alike get behind their taxes, avoid and address tax issues head on, organize and deal with their taxes more efficiently, and we help them make the most of their revenue.

What is Backup Withholding and How Does It Affect You?

When paying your taxes, there are many things to consider, including backup withholding. What is backup withholding, and how does it affect you, the taxpayer?

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The government collects taxes on income, among other things. But there are many different types of income, and some taxpayers don’t always report the income they generate.

Furthermore, some taxpayers might not even realize that they need to account for taxes on some of the kinds of income that they earn or know how to calculate the respective tax rate for said incomes.

Backup withholding is the IRS’s method of ensuring that taxpayers who forget to report certain kinds of income still end up paying the taxes that they owe, usually to the detriment of the taxpayer (i.e. overpaying).

This is because many taxpayers pay taxes through their employer or the business they work for. However, that business is not required to withhold all incomes, and is allowed to assume that the taxpayer is doing their due diligence. If they aren’t, and the IRS catches wind of it, backup withholding ensures that Uncle Sam recoups some of the money it has lost.

 

What Is Backup Withholding?

In the IRS’s own words, there are “situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.” This is what the agency refers to as backup withholding. It has a flat tax rate of 24 percent on all income affected by it. There are types of income that are exempt from backup withholding, but in general, it applies to most income that must usually be reported on Forms 1099 and W-2G.

Backup withholding does not always trigger when the taxpayer isn’t reporting their income. Instead, it triggers when the IRS doesn’t have sufficient information to adequately track the income a taxpayer is receiving, specifically tied to their taxpayer identification number (TIN).

In other words, it usually triggers when a taxpayer uses the wrong TIN. This is referred to as Backup Withholding Program B, or BWH-B.

Underreporting or failing to report certain income is referred to as Backup Withholding Program C, or BWH-C.

 

Does Backup Withholding Apply to You?

You will know if backup withholding applies to you, as well as why the IRS is applying withholding to begin with. The IRS is required to send out four notices within 120 days prior to beginning backup withholding due to incorrect reporting or underreporting of income (BWH-C), and will send you a notice CP2100 and CP2100A if you are about to be subject to backup withholding due to incorrect or missing TIN (BWH-B).

Check through all the mail, letters, and notices the IRS has sent you to ensure that you aren’t currently under the effects of backup withholding on your income. Note that of the four notices the IRS sends before it begins program C, the final notice is the one that informs you that they have started.

 

What Income is Affected?

The IRS does not affect all types of income with backup withholding, just income usually listed in Form 1099 and W-2G. More specifically, this income includes:

You can check the respective IRS newsroom post for more information on what income is subject to backup withholding.

Payments that are exempt from backup withholding include:

 

How to Stop Backup Withholding

The IRS does not require you to personally inform them that you’re addressing the problem to stop backup withholding on your income, thankfully. What it does require you is to accurately amend your tax returns with any missing or underreported income and fix the issue of the wrong or missing TIN.

This includes going back and fixing old tax returns that you’ve already sent in. The IRS can basically hold you accountable for about 3-6 years’ worth of tax returns, but it’s generally a good idea to go through them all and amend as many as you can. Additionally, exploring tax relief options for New York residents can further enhance your financial situation. Many programs are designed to ease the burden for local taxpayers, providing valuable resources for those who qualify. By understanding these options, you can make informed decisions and potentially save a significant amount of money.

Being up-to-date and accurate on your tax returns is also usually a prerequisite for getting anything done with the IRS, including payment plans for late payments or accrued tax debts.

If you’re having trouble keeping up with your tax returns, then getting professional tax preparation services to help out can be a smart decision.

 

Avoiding Tax Problems in the Future

The IRS can be confusing to work with. While their job remains relatively simple – preventing tax fraud – decades of loopholes and tax schemes has led to complicated rulesets and a number of hoops most taxpayers aren’t even aware they need to jump through. It’s not particularly difficult to show up on the IRS’s radar, and even innocuous mistakes might lead to something like backup withholding.

Don’t let that discourage you from finding a way to resolve your problems with the tax man. The IRS is obligated to give you ample warning whenever it has to take action against your tax account and will do its best to explain what’s going on – and what it wants from you.

But if you want to preempt these issues, and better protect yourself against problems with the IRS in the future, nothing beats professional help.

A tax professional can review your accounting and your tax return writing habits and help correct them to ensure that you’re squeaky clean – without incurring greater costs, penalties, and interest payments from the government. Better yet, a tax professional might even help you figure out where you could be saving more money, and where you might be dropping the ball on potential deductions and tax credits (that you qualify for).

At Rush Tax Resolution, we can help you minimize your tax debts, avoid future tax problems, and help you find the most effective way to do your duty as a taxpayer without overpaying or incurring the wrath of the IRS.

Delinquent Taxes: What Are They and How Can They Affect You?

Delinquent taxes can lead to dangerous consequences from the IRS, but what exactly are these taxes, and how can they negatively affect you?

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Tax Day falls on mid-April nearly every year, with certain exceptions (such as 2020 and 2021, due to COVID-19). All eligible taxpayers contribute to the government’s coffers throughout the year, but Tax Day is the day every eligible American must complete and file their individual income tax returns.

These returns represent a crucial data point for the federal government, which cross-references them with information gathered from other citizens, institutions, companies, and organizations. This is how the IRS determines whether a taxpayer still owes taxes for the year, catches and corrects mistakes, or spots potential fraud. Therefore, it is every taxpayer’s duty to fill out and file their returns and do so before or on Tax Day.

Sometimes, inconsistencies, mistakes, financial changes, or even just forgetfulness on the taxpayer's part can lead to an overdue balance on a taxpayer’s account.

Furthermore, unfiled tax returns or filing late can lead to a penalty, which can grow into substantial debt if left unpaid.

Regardless of how your tax balance grew, if the government finds that you owe unpaid or delinquent taxes, you have a short grace period before it begins levying collection actions against you and your assets and belongings.  

 

What Are Delinquent Taxes?

Most taxpayers pay taxes on a regular basis through wage withholding or recurring payments to the government.

Delinquent taxes are often the result of:

The IRS does not take kindly to delinquent taxes and has the means to retaliate harshly. The IRS’s toolkit for combatting tax debt takes the form of the Collections Process and can include claiming a portion of your wages through wage garnishment, placing a tax lien on everything you own, and even selling your properties to cover your debt.

 

When does the IRS Send a Notice of Delinquent Taxes? 

If you fail to file your tax return, the IRS will send you a notice regarding your late return and the penalties you are facing for delinquent taxes.

If your return shows that you owe taxes, the IRS will send you a bill for the due amount – as well as provide a payment deadline, giving you a window in which to cover the late amount or face late payment penalties.

These penalties stack and are unrelated to the accruing interest rate on your growing tax debt, which changes on a quarterly basis.

In general, once the IRS sends you a bill, you have limited time to act before your debt grows. It is at this point that the IRS will begin to utilize certain collection actions to coerce payment.

The tax assessment date provided on the notice of delinquent taxes from the IRS also serves as a point of reference for your tax debt’s statute of limitations, or eventual expiration date - ten years into the future.

 

Can I Wait Out a Tax Debt? 

Tax debt lasts ten years, plus any tolling periods (such as military deferment, bankruptcy, entering a payment plan, and anything else that keeps the IRS from utilizing collection actions against you). But the IRS can also bump up the pressure on their collection process before those ten years are up.

In cases where a tax debt has gone unnoticed for some time, the IRS may convince taxpayers to enter into a much more favorable payment plan in exchange for an extension on the expiration date. However, this is usually rare.

Unless your only tax debt is an unpaid debt from nearly ten years ago, you’re definitely better off negotiating a payment plan as soon as possible rather than letting your debt pile up over the years.

 

What If I Can’t Afford to Pay? 

Some taxpayers try to avoid filing their taxes because they know they can’t pay their existing debt. This is a bad idea. You should always file a tax return if you are eligible for one.

This is because failing to file will always incur a penalty, and it is required for taxpayers to be up to date with their tax returns before the IRS accepts any kind of payment plan, including a partial payment plan.

Even if you cannot afford to pay off the entirety of your tax debt within the debt’s remaining lifetime, it is a much better idea to negotiate a partial payment plan through an Offer in Compromise with the IRS than try to wait it out. The IRS can and will resort to levies and even potential criminal charges if you try to intentionally avoid paying taxes.

An Offer in Compromise involves proposing a reduced tax debt based on what you can afford to pay, in exchange for reduced penalties and an end to the collection actions the IRS may utilize against you (including levies).

An Offer in Compromise is usually only successful if you can prove to the IRS that you don’t have the financial means to pay down your full debt.

 

The Importance of Working With Tax Professionals

Tax professionals can help you negotiate a payment solution with the IRS and help you prepare and prevent future problems through careful tax management and return filing services. They can also guide you through the various tax debt relief options available, ensuring that you choose the best strategy for your financial situation. By understanding these options, you can take proactive steps to alleviate your tax burden and safeguard your future. Working with a knowledgeable tax advisor can make a significant difference in navigating these complexities.

The last thing you want is to waste time negotiating a failing payment plan. Professional help can save you a lot of crucial time.

The best piece of advice we can give you is to act as soon as possible. It’s in your best interest to get in touch with an experienced tax professional right away, but one way or the other, the last thing you should do when facing the IRS is dawdle.

IRS penalties and interest rates are no joke, and even a meager debt can quickly pile up to an unmanageable sum.

If you’re in trouble with the IRS, get help as soon as possible. Our tax professionals at Rush can help guide you through the collection process and resolve your delinquent taxes.  

Why Was My Tax Return Rejected?

There are many common errors that taxpayers may not know about that will lead to your tax return being rejected. Here's what to know.

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If you are one of the millions of Americans required to file taxes this year, then knowing why your tax return might have been rejected in the past – and learning how to avoid it now and in the future – will be vital. 

The US federal tax code is an evolving beast with millions of words, and much of it is legal jargon. The IRS is responsible for helping taxpayers interpret and comprehend their responsibilities, especially with regards to when and how to pay taxes. But there are times when the IRS is far from comprehensive. 

We’re going to go over some of the more common mistakes taxpayers tend to make when filing their tax returns and how to avoid them. 

 

Common Errors in Tax Returns

Tax returns are meant to be signed documents providing key information about the taxes you are meant to pay, based on your: understanding tax liens in your area is crucial for maintaining your financial health and avoiding potential pitfalls. Many individuals overlook the implications of tax liens, which can significantly affect credit scores and property ownership. By staying informed and educated about these liens, homeowners can make proactive decisions that protect their assets and financial future.

The IRS takes the information provided by the taxpayer and cross-references it with data from thousands of other reports provided by employers, companies, credit report agencies, banks, and other institutions. 

If everything lines up, your tax account may be updated (in case you have outstanding tax payments to make or are eligible for a tax credit or refund). If there’s a mistake, the IRS will usually inform you of the error and will let you know how you should proceed. 

Under no circumstances should you let a rejected tax return remain unfiled. Instead, work with the IRS or a tax professional to rectify the error as soon as possible and refile. 

 

Missing Information

Tax returns are information-heavy documents. They require you to dig up quite a lot of paperwork and demand accuracy. However, sometimes, taxpayers might get a little too caught up with the details and might lose the forest for the trees.

Some taxpayers end up forgetting to input their social security number, write down their taxpayer identification number, or simply forgot to use the right form. Unfortunately, even relatively innocent errors like a misspelled name can land you in hot water, or at the very least, get your tax return rejected. 

Under certain circumstances, the IRS may require you to refile via mail. The IRS will notify you if you must do so. If the IRS did not explain why your return was rejected, you can contact them for clarification. 

 

Major Inaccuracies

If things don’t add up, either mathematically or otherwise, your return might trigger a red flag with the IRS. This means that it may lead your return to be selected for investigation, and the IRS may ask you for more information. 

Applying for certain deductions and credits that are unusual for your income, filing status, or location or making major math errors can cause the IRS to look twice. 

In cases of simple math errors, the IRS will usually correct your return for you and notify you via mail that it has done so. This can lead to a larger tax bill than expected or even a tax refund. 

 

Forgetting to Sign the Tax Return

While it seems incredibly innocuous, the IRS cites this as a relatively common mistake that taxpayers make. One reason for it may be that many taxpayers rush to finish their returns on the eleventh hour and thus forget to sign off on an otherwise completed return. 

Needless to say, the IRS disapproves of unauthorized returns and is naturally disinclined to process a return that hasn’t been signed by the individual it is meant to represent. 

 

What to Do If Your Tax Return is Rejected

The last thing you should do is wait. Instead, contact the IRS or a tax professional immediately, figure out why your return was rejected, and work with someone to fix the issue. The IRS can levy penalties and interest on your tax account if you’re tardy with your tax returns. 

The IRS gives a grace period of five business days when a tax return is rejected – this means that filing within that period will still let your return count as on-time, even if it’s past the due date. 

Consider professional filing services. If you’re planning to resend your tax return electronically but are unsure if you’ve sufficiently addressed the problem, you can work with a tax professional to go over your return one last time. 

If your tax return was rejected due to suspected fraud, the IRS might ask you to resend your return via mail. In these cases, it may be that someone else has tried fraudulently filing with your Social Security Number. 

 

What If You Delay Your Tax Return?

Tax season comes around once a year, usually in April. However, the April date was altered in 2020 (to July 15th), as well as in 2021 (to May 17th), due to the COVID-19 pandemic. 

Missing these deadlines can carry harsh consequences. However, the IRS will usually understand if you give a reasonable explanation and manage to file within the rest of the month. 

For every month that your tax return is delayed, the IRS will add a penalty equal to 5 percent of the tax amount owed that year, up to a maximum of 25 percent after five months. In addition, your tax account will begin to accrue interest at rate that changes annually. This interest accumulates until the return is filed and your due balance is paid. If you were eligible for certain tax refunds, these will be automatically used up to cover your due balance. 

If you continue to ignore your tax return filing duties, the IRS has more severe consequences up its sleeve.

Don’t let things escalate with the IRS. Instead, get in touch with a tax professional today and sort out your tax issues before things blow out of proportion. 

 

CONTACT RUSH TAX RESOLUTION TODAY!

What Is a Tax Credit and How Do They Work?

Tax credits can help taxpayers by providing financial relief, but what is a tax credit, how do they work, and how do you claim them?

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Many taxpayers may have become familiar with what tax credits are and how they function, through an energy-efficient home purchase, a first child, or through caring for an elderly loved one. Yet what really are tax credits, and how do they differ from tax rebates and deductions?

What is a Tax Credit? 

Put simply, tax credits are refundable or non-refundable sums sent to a taxpayer through the IRS and the US Treasury.

All tax credits must be used to reduce your tax liability to the government. If the tax credit exceeds your tax liability, then it may be refunded if it is a refundable tax credit. failure to properly report your tax credits can lead to delinquent tax consequences for homeowners. It's essential to stay informed about any changes in tax regulations that could impact your eligibility. Additionally, seeking professional advice can help ensure that you navigate these complexities without incurring any penalties.

For example, the first, second, and upcoming third Economic Impact Payments (stimulus checks) are a tax rebate, or refund. This is money the government puts directly into the hands of taxpayers, without any obligation to use it towards their tax payments, even including outstanding tax debts. Taxpayers in California who qualify can find important information related to california middle class tax refund details on the official state website. This initiative is designed to provide financial relief and support to households, ensuring that middle-class families have the necessary resources during challenging economic times. It is crucial for residents to stay informed about eligibility requirements and deadlines to maximize their benefits.

Credits like the Earned Income Tax Credit, on the other hand, must first be used to pay for your taxes. Tax credits differ from deductions in that they can be claimed regardless of whether you itemized your deductions or not. They also differ in the sense that some tax credits can become refunds if they otherwise fully cover your tax liability.

Generally speaking, tax credits are meant to provide relief to taxpayers who may be facing economic hardship as a result of their circumstances. New parents, children with elderly dependents, low- to moderate-income households saving for a family member’s tuition, and those saving for retirement may be eligible for certain tax credits. Here are just a few examples of specific tax credits individuals can make use of to reduce their tax liability.

Types of Tax Credits for Individuals 

Tax credits for individuals are broken down by the IRS into five separate categories:

Family and Dependent Credits

Common family credits include the:

Each tax credit has its own IRS publication to walk you through the eligibility process and help you determine, at a glance, whether you would be able to use the credit during tax season that year.

As a general rule, the IRS takes into consideration:

      1. Your income,
      2. Whether you have qualified persons in your care, and
      3. Whether your earnings go towards covering care expenses.

The EITC is the only tax credit in this list that can be used even without children and dependents and is largely based on your income and financial circumstances.

Homeowner Credits

Homeowners may qualify for the:

These credits apply to homeowners specifically, including those who own residential rental property as an investment vehicle.

Healthcare Credits

Healthcare credits include the:

The HCTC is exclusive to those under Trade Adjustment Assistance, or older taxpayers under the Pension Benefit Guaranty Corporation.

Eligibility for the Premium Tax Credit can be determined through the IRS’s own pre-qualification tool. It is still a good idea to speak with a tax professional about what tax credits you may qualify for.

Education Credits

Educational credits include the:

There are also tuition-specific itemized deductions. To determine eligibility, you would need the enrollment status of the student in the family, your filing status and AGI, as well as how and from whose income expenses were paid.

Savings Credits

Different income-based and savings-based tax credits include the:

The Recovery Rebate Credit is a tax credit given to taxpayers who are eligible for the 2020 and 2021 Economic Impact Payments (tax rebates) but did not receive them. More accurately, the Economic Impact Payments were advance payments of the Recovery Rebate Credit. Taxpayers eligible for a stimulus check who did not receive one, or only received a partial payment, may be eligible for a Recovery Rebate Credit on their next tax bill.

The Saver’s Credit or Retirement Savings Contributions Credit is a tax credit given to qualifying taxpayers who contribute to an IRA (both Roth and traditional) or an employer-sponsored retirement plan. The credit amount is based on the taxpayer’s income, filing status, and contributions to the plan.

How to Claim a Tax Credit 

Tax credits are taken into account at the very end of the tax filing process, when you’re done calculating your total tax liability and know what you owe the government. It’s also essential to stay informed about payroll tax deadlines and extensions to avoid penalties. Missing these dates can lead to additional fees and complications down the line. By keeping a close eye on your obligations, you can ensure a smoother tax filing experience.

You then subtract so-called above-the-line deductions from your gross income, remove your standard or itemized deductions from your new adjusted gross income, and finally, consider the tax credits you are eligible to receive, with the correct amounts. These credits can help some taxpayers partially or even eliminate the year’s income tax liability.

If you make a mistake on calculating your tax credits, the IRS may correct it for you (and use the rest of the credit to cover the increased liability if your bill was raised). Otherwise, the IRS will send you a notice for your adjusted tax bill, as well as a deadline to cover the outstanding balance before penalties and interest accrue. Working with a professional can help you eliminate mistakes and avoid unexpected tax costs.

Nonrefundable tax credits can only be used to lower tax liability, and do not become cash should your liability hit zero. Refundable tax credits become tax refunds once your tax liability is paid, and at least a portion of the credit goes unused.

While the IRS provides a myriad of information on individual tax credits as well as qualifying tools to help you navigate each tax credit’s eligibility criteria, it helps to revisit the topic with a tax professional. At Rush Tax Resolution, we can help you prepare your income tax return and make sure that you don’t miss out on any applicable tax credits.

I Have a Mistake on My Tax Returns: What Should I Do?

If you have found a mistake on tax returns already filed, do not panic. There are ways to fix these tax return mistakes.

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Whenever tax season begins, people rush to get their taxes done – one, so they’re out of the way, and second, to claim any refunds they may be eligible for. But if you happen to make a mistake on tax returns already filed, knowing what to look out for and how to prepare yourself for the potential consequences is important. Here is what you should know:

 

Do Not Panic

If you suspect that you have made a mistake on your tax returns, the last thing you should do is panic. Take a long, deep breath, and relax. In the vast majority of cases, minor mistakes and issues iron themselves out with incredibly few to no consequences.

If a mistake nets you a slight increase in your tax balance, the IRS will usually pull it out of any eligible refunds or credits first. The IRS will also inform you of any errors and suggested changes, and in many cases, will even go ahead and make those changes automatically (while giving you the chance to appeal them, and provide evidence to support your claim). Understanding the differences between 1099k and 1099misc is crucial for ensuring accurate reporting of your income. Each form has specific purposes and reporting thresholds, which can impact your overall tax liability. Familiarizing yourself with these distinctions will help you avoid potential pitfalls when filing your tax return.

In any case, the smartest thing to do is wait. Let the IRS process your tax return and come back to you with the information you need to decide whether you need to amend your return or not. To that end, the IRS can help you make an important decision.

 

Amending Taxes: Use the IRS’s Amended Return Tool 

The IRS provides taxpayers with an online interactive test needed to determine whether their return would have to be amended, and how. The IRS corrects many errors and mistakes themselves but may require taxpayers to amend their tax returns under specific circumstances. These include wishing to change one’s filing status (such as changing from a single or separate filing status to a joint filing status), even when no errors were made in the return itself.

When amending a tax return, you will need to gather some key information first.

 

Identifying Mistakes on Tax Returns

Another way to determine whether your return will need to be amended or addressed is knowing what the IRS typically flags as a mistake on tax returns. Tax returns can contain any number of potential errors, but the most common usually involve a missing signature or simple math error. Some common taxpayer mistakes when filling out and filing a return include:

    1. Incorrect SSN. Your Social Security Number on every tax return sent to the IRS should match the number provided on your Social Security card.
    2. Misspelled names. Even simple misspellings can cause errors in the system, as the name must match the number exactly.
    3. Wrong filing status. Married couples filing jointly shouldn’t report as filing separately, and vice versa. There are other filing statuses to be aware of as well, such as head of the household.
    4. Math that doesn’t add up. This is one of the most common mistakes, and usually the least severe. When the numbers don’t add up and the error isn’t egregious, the IRS will typically correct your return for you. It’s a bigger deal when it seems like the numbers were intentionally altered (even when they really weren’t).
    5. Claiming credits or deductions you aren’t entitled to. If a taxpayer takes into consideration a credit or refund they aren’t actually supposed to receive, this may result in an unexpected tax debt. A professional tax preparer can help you work through what credits and deductions you can safely claim.
    6. Forgetting to sign your return. All tax returns sent to the IRS must be signed, although there are certain exceptions.
    7. Forgetting to renew an ITIN. Individual tax identification numbers can expire. If yours has expired, you should have received a notice from the IRS telling you so. This means you should renew your ITIN.

For other potential errors or a mistake on tax returns filed, bring a copy of your return to a tax professional and discuss your situation in greater depth. Understanding tax lien implications can be crucial for your financial future. A tax lien may affect your credit score and limit your ability to secure loans or mortgages. It’s important to address any outstanding issues as soon as possible to mitigate the long-term effects on your financial health.

 

How to Fix Tax Return Mistakes

If you've noticed a mistake on your tax return, there are a number of ways to correct the information and avoid penalties with the IRS. These three options can help you amend your returns.

 

1. The IRS May Fix the Issue for You

In some cases, the IRS will not require an amended return because the issue will have already been addressed and fixed. This is most often the case when the only error you made was a simple math mistake.

If you were eligible for a refund, they may claim a portion of it to pay the outstanding balance. If you have instead become eligible for an additional refund, they may even give you back more tax dollars.

However, if you now owe the IRS, you will be given a window of time to send payment (or, in the case of a larger and more substantial debt, you will be given time to arrange a payment plan). Ignoring the IRS’s payment deadlines can result in penalties and ensuing collection actions.

 

2. Filing an Amended Tax Return

Amended tax returns can be best summarized by their three columns:

Sadly, there is no e-filing option for amended returns. When you have finished filling out your Form 1040X, you must print it out. You will need a copy of the previously filed tax return (the one being amended), as well.

 

3. Hire a Reputable Tax Preparer

Tax preparation services, when offered by a reputable tax preparer with the necessary credentials (an IRS Preparer Tax Identification Number and history as a tax professional) can help taxpayers avoid simple clerical errors and major tax liabilities alike, so long as they keep track of their finances and communicate often with their tax expert.

Working with a reputable tax preparer can save you the headaches and worries associated with tax mistakes, the amendment process, and a potential tax debt (not to mention the IRS’s ensuing penalties and collection process).

 

How Rush Can Help You

Rush Tax Resolution will work with you to identify and amend tax return errors, help you catch and avoid return issues in the future, and prepare your taxes to not only mitigate the risk of a red flag or audit, but help ensure that you don’t miss out on any credits, deductions, or refunds that you might be eligible for.

By choosing us as your go-to tax professionals for tax debt resolution, return preparation, and tax advice, you are partnering with one of the most trusted and experienced tax teams in the country.

 

CONTACT RUSH TAX RESOLUTION TODAY