Whether you’re still reeling from the aftershocks of COVID-19, struggling to cope with changes to tax laws, or as a self-employed person, have neglected to consider differences between gross pay versus net pay, receiving a bigger tax bill than anticipated, can come as an unpleasant surprise.
Failing to accurately calculate your tax liability as a small business owner, can create financial difficulties that last for many months, if not years. This can be particularly troublesome if taxes are owed for the previous year as well as for the 1st quarter estimates.
However, receiving a bigger tax bill than expected doesn’t have to set you on the path to financial ruin. Below are some things to keep in mind, and legitimate steps you can take, as recommended by tax services in Coral Gables:
Even if you can’t pay, you should still file your taxes
Failing to file by March 15th as a small business owner because you can’t pay the amount, will result in a ‘Failure to File’ penalty from the IRS. These penalties can be steep, and are a percentage of the taxes owed that you haven’t paid on time.
Know that an extension doesn’t protect you from non-payment
If you request an extension from the IRS, all you’re doing is buying yourself more time to file your taxes, not pay them. Experts recommend always paying estimated tax liabilities on time, even if the amount isn’t accurate, as this can always be amended later. If you want to know a rough estimate of what you might owe, look at your last tax bill and add 10% to it.
Set up payment plans
You might qualify for a short or long-term payment plan if you need more time to pay your tax bill. Do note that interest penalties apply with payment plans though, so it’s always best to try and pay off your tax debt as quickly as possible.
Don’t take from your payroll tax fund
Taking payroll tax funds and using them to pay for your own tax liabilities, could result in you getting even further into debt. Payroll withholdings are for your employment obligations as a small business owner, and should never be used for your own tax purposes. Failure to adhere to this will likely result in a harsh penalty from the IRS.
Review past tax returns
It’s a great idea to have a tax specialist review your past tax returns in search of deductions or opportunities to make savings that you may have missed or been unaware of. Bonus or accelerated depreciation, for example, is often missed but can help small business owners reduce their tax burden, as are opportunities for expenses deductions, like those related to a home office or professional fees.
Hire an accountant
Working with an accounting firm in Miami can help ensure that you never get a nasty surprise when tax season comes around, and with their expertise, up-to-date knowledge, and earnings adjustments, you may be able to minimize your end-of-year tax liabilities significantly.
It’s rare that a small business owner who works with an accounting firm, will ever get an unpleasant surprise when their tax bill comes through, in fact, they’re far more likely to be pleasantly surprised by the many ways they can save money and benefit from reduced taxes.