Avoid Penalties for Tax 'Failures' by the Corporation

The Internal Revenue Code provides for penalties for failures to file returns or pay taxes in an attempt to make certain that all taxpayers and taxpaying entities pay their share of taxes. The penalties imposed by the IRS typically consist of payment penalties; however, the IRS can impose criminal penalties for willful failure to file taxes, tax evasion, or making a false statement on your taxes. The penalties are an acknowledgment that taxpayers and taxpaying entities would not pay their taxes or file tax returns if they weren't required to do so.

The following failures will result in a penalty:

• Failure to File Tax Return. A penalty will be imposed for not filing your tax return. The penalty is based on the amount of tax not paid by the due date;
• Failure to Pay Tax. A penalty will be imposed for failure to pay your taxes by the due date. You will have to pay a penalty for the period of time that your taxes aren't paid, which penalty cannot be more than 25 percent of your unpaid tax;
• Failure to Withhold, Deposit, or Pay Taxes. A penalty will be imposed if you don't withhold income, Social Security, or Medicare taxes from your employees, or if you withhold taxes and don't deposit them or pay them to the IRS. You may be subject to a penalty on the unpaid tax, plus interest. And you may be subject to penalties if you deposit the taxes late;
• Failure to File Information Returns. A penalty will be imposed if you don't file information returns by the due date; if you don't include all required information; or if you report inaccurate information;
• Failure to Furnish Correct Payee Statements. A penalty will be applied if you don't further a required statement to a payee (employee) by the required date; if you don't include required information; or if you report inaccurate information;
• Waiver of Penalty. It is possible for the IRS to waive penalties for the failures above if you can demonstrate that these were due to a reasonable cause and not willful neglect.

If you are just starting a business, understanding basic tax codes and IRS expectations can help. Read Business Income Taxes for help with the details. In addition, our special report on Top 10 Tax Tips for Small and Growing Businesses will lead you in the right direction.

In order to avoid penalties for any of the failures listed above, it is a good idea to have effective procedures in place to meet your corporation's tax obligations in a timely and accurate manner.