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Four common tax errors that can be costly for small businesses

A small business owner often wears many different hats. They might have to wear their boss hat one day, and the employee hat the next. When tax season comes around, it might be their tax hat.

They may think of doing their taxes as just another item to quickly cross off their to-do list. However, this approach could leave taxpayers open to mistakes when filing and paying taxes.

Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave taxpayers and their businesses open to possible penalties. Using IRS Free File or a certified public accountant is the easiest ways to avoid these kinds of errors.

Being aware of common mistakes can also help tame the stress of tax time. Here are a few mistakes small business owners should avoid:

Underpaying estimated taxes
Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

Depositing employment taxes
Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers.  If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

Filing late
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

Not separating business and personal expenses
It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.       

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It’s time again for folks to renew their ITINs…here are some things to remember

Taxpayers with individual taxpayer identification numbers should find out if their number expires this year.  If it does, they should renew it now to avoid delays with their refund when they file their taxes next year.

An ITIN is a tax ID number used by taxpayers who don’t qualify for a Social Security number. Here’s what these taxpayers need to know about which numbers are expiring and how to renew them.

Which numbers are expiring at the end of this year?

Any ITIN with middle digits 83, 84, 85, 86 or 87.
Any ITIN not used on a tax return in the past three years.

What about numbers that expired in the last few years?
ITINs with middle digits 70 through 82 that expired in 2016, 2017 or 2018 can also be renewed.

How does someone renew their number?

Taxpayers with expiring ITINs need to complete renewal application, Form W-7, Application for IRS Individual Taxpayer Identification Number. They should include all required ID and residency documents. Failure to do so will delay processing. until the IRS receives these documents.

When should someone submit their renewal applications?

As soon as possible. With nearly 2 million taxpayer households affected, applying now will help avoid the rush.

What are some tips to avoid common mistakes that are made when submitting their renewal?

  • Indicate the reason for the ITIN on the Form W-7.
  • Mail the proper identification documents. Taxpayers mailing their ITIN renewal applications must include original identification documents or copies certified by the issuing agency and any other required attachments.
  • Include all supporting documentation, such as U.S. residency or official documentation to support name changes.
  • Complete the new W-7 application.

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IRS: Eligible employees can use tax-free dollars for medical expenses

WASHINGTON — With health care open season now
under way at many workplaces, the Internal
Revenue Service today reminded workers they may
be eligible to use tax-free dollars to pay medical
expenses not covered by other health plans.

Eligible employees of companies that offer a health
flexible spending arrangement (FSA) need to act
before their medical plan year begins to take
advantage of an FSA during 2020. Self-employed
individuals are not eligible.

An employee who chooses to participate can
contribute up to $2,750 through payroll deductions
during the 2020 plan year. Amounts contributed
are not subject to federal income tax,
Social Security tax or Medicare tax.
If the plan allows, the employer may also
contribute to an employee’s FSA.

Throughout the year, employees can use FSA
funds for qualified medical expenses not
covered by their health plan. These can include
co-pays, deductibles and a variety of medical
products. Also covered are services ranging
from dental and vision care to eyeglasses
and hearing aids. Interested employees
should check with their employer for details
on eligible expenses and claim procedures.

Under the FSA use-or-lose provision, participating
employees normally must incur eligible expenses
by the end of the plan year or forfeit any unspent
amounts. However, employers can, if they choose
to, offer an option for participating employees to
have more time to use FSA money.

  • Under the carryover option, an employee can carry over up to $500 of unused funds
    to the following plan year. For example, an
    employee with unspent funds at the end of
    2019 would still have those funds available to use in 2020.
  • Under the grace period option, an employee
    has until two and a half months after the end
    of the plan year to incur eligible expenses.
    For example, March 15, 2020, for a plan year
    ending on Dec. 31, 2019.
  • Employers can offer either option (not both)
    or no option.

Employers are not required to offer FSAs.
Interested employees should check with their
employer to see if they offer an FSA.
More information about FSAs can be found at
IRS.gov in
Publication 969, Health Savings Accounts and
Other Tax-Favored Health Plans
.

Taxpayers can take steps now to Get Ready to file their taxes in 2020

There are steps people can take now to make sure their tax filing experience goes smoothly next year. First, they can visit the Get Ready page on IRS.gov to find out more.

Here are a few other things people can do now:

Check their withholding and make any adjustments soon
Since most employees typically only have a few pay dates left this year, checking their withholding soon is especially important. It’s even more important for those who:

  • Received a smaller refund than expected after filing their 2018 taxes this year.
  • Owed an unexpected tax bill last year.
  • Experienced personal or financial changes that might change their tax liability.

Some people may owe an unexpected tax bill when they file their 2019 tax return next year. To avoid this kind of surprise, taxpayers should use the Tax Withholding Estimator to perform a quick paycheck or pension income checkup. Doing so helps them decide if they need to adjust their withholding or make estimated or additional tax payments now. 

Gather documents
Everyone should come up with a recordkeeping system. Whether it’s electronic or paper, they should use a system to keep all important information in one place. Having all needed documents on hand before they prepare their return helps them file a complete and accurate tax return. This includes:

  • Their 2018 tax return.
  • Forms W-2 from employers.
  • Forms 1099 from banks and other payers.
  • Forms 1095-A from the marketplace for those claiming the premium tax credit.

Confirm mailing and email addresses
To make sure these forms make it to the taxpayer on time, people should confirm now that each employer, bank and other payer has the taxpayer’s current mailing address or email address. Typically, forms start arriving by mail or are available online in January.

People should keep copies of tax returns and all supporting documents for at least three years. Also, taxpayers using a software product for the first time may need the adjusted gross income amount from their 2018 return to validate their electronically filed 2019 return.

File electronically and choose direct deposit for a faster refund
Errors delay refunds. The easiest way to avoid them is to file electronically. Using tax preparation software is the best and simplest way to file a complete and accurate tax return. Tax prep software guides taxpayers through the process and does all the math. In fact, taxpayers can start looking into their filing options now.

Another way to speed thing up is to use direct deposit. Combining direct deposit with electronic filing is the fastest way to get a refund. With direct deposit, a refund goes directly into a taxpayer’s bank account. They don’t need to worry about a lost, stolen or undeliverable refund check.

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NATP

National Association of Tax Professionals