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Avoid future Penalties & the Tax Gap for your business by getting tax help.

by Steven Goldburd on Nov. 18, 2013

Tax Tax  Sales & Use Tax Tax  Tax Litigation 

Summary: It is very important to avoid all types of tax penalties. Failing to pay taxes or underpaying taxes can lead to you paying penalties. If you don’t pay enough by the due date of each payment period then you are becoming liable for a penalty.

The biggest difference between business income taxes and personal income taxes is the way they are paid. Employed personnel have income taxes and FICA taxes deducted from their salary. For self employed individuals and business owners do not receive paycheck, they need to make an estimate and pay the respective taxes for both income and self employment taxes (Social Security/Medicare) every 3 months to avoid fines and penalties. 
According to the IRS, the estimated tax is used to pay for both income and self employment tax and other taxes and the amount mentioned in the tax return. If you pay less tax either through withholding or estimated tax or combination of both of them, you might end up paying penalties. If you don’t pay enough by the due date of each payment period then you are becoming liable for a penalty no matter whether you are due for a refund when you file your tax return.

Estimating Business Taxes

Avoiding underpayment fines and penalties are very important and the best way to do so is to pay the estimated taxes  on your total business income and that too 4 times each year.  The dates for estimated tax payments are April 15, July15, October 15 and January 15.

How to Calculate Underpayment and Penalties

There is a flow chart in the IRS form 2210 that guides you through the calculations to figure out whether you underpaid estimated taxes and the underpaid amount.  Using the flow chart in the IRS form 2210 will help you find out whether you have underpaid your estimated taxes. Make sure to make the  remaining payment as soon as you discover the mistake.  The calculation of penalties is quite complexed , so if you think that there is a mistake in your payment and you will be penalized then wait for the IRS to do the calculations and send you the bill. Send the payments as soon as you figure out the error. According to the IRS, you can let them figure out the underpayments  and penalties.

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