Effective payment processing is vital to the success of any business. Whether this involves check printing and mailing, payroll, direct deposit automation, or any other financial process, you need efficient, safe, and tailored solutions for your business. And as the weather gets nicer and the days get longer, business owners and accountants have one more financial concern to stay ahead of: tax season.
Ensuring that your taxes are in order and that your business is fully tax compliant with all levels of tax regulations is critical for any business. Failing to stay tax compliant can lead to major fines levied by the IRS. In some cases when payments aren’t made on time or if a business underpays, the government may even be able to garnish your wages, place liens on property, or file criminal charges.
Staying tax compliant is essential for the success of your business, but it isn’t always so easy to understand the ever-changing tax codes and regulations. Hiring an experienced accountant or working with outsourced accountants (or outsourced payment processing professionals) can help your business operate smoothly and remain tax compliant. Here, we’re taking a closer look at what tax compliance is and offering some tips to keep you in the clear. Trust us, come April this year, you’ll be glad you made tax planning a priority.
What is Tax Compliance?
Most of us have heard of this term, but have you stopped to consider what it really means? Generally, tax compliance refers to the process of being aware of all state, federal, and local tax laws (for some businesses, this may include international tax laws). Tax compliance means that your business understands and complies with all tax laws and tax regulations.
One simple example of tax compliance is the annual tax day in April in the United States. If you fail to file your taxes as an individual by April 15th then, in the eyes of the IRS, you are considered noncompliant.
Businesses, on the other hand, must engage with an even more complex system of accounting, reporting, and tax filing processes. In addition to income taxes, most businesses will also need to consider the following tax concerns:
- Sales tax on merchandise and services.
- Property tax on real estate assets.
- Excise taxes and administrative taxes.
- Franchise or gross receipts taxes.
- Employment and payroll taxes.
- Taxes on dividends.
If a business or individual fails to observe, report, or pay the full amounts of taxes owed, you may be exposed to significant consequences. These penalties may include fines or even possible criminal prosecution.
What You Need to Know About Tax Compliances for Your Small Business
Personal tax compliance is one thing, but when it comes to ensuring that your business is tax compliant, it’s an entirely different process. There are many concerns that will vary by location and the structure of your business that business owners and accountants need to be aware of when it comes to ensuring tax compliance.
When it comes to ensuring your company is fully tax compliant, there are several factors you need to be aware of and deadlines to meet. Working with an experienced accountant or tax professional is one ideal way to ensure tax compliance so you can focus on growing and running your business.
As a beginner’s guide, here are some important things you’ll need to know about keeping your business tax compliant:
- Income tax: every entity, whether a person or company, is required to pay some form of taxes on your income. The location and structure of your business will determine which unique tax laws apply when filing your income taxes. It’s important to consider how you report profits and losses. Some businesses might choose to pay their income taxes on a quarterly basis to reduce the overall amount that is due when filing.
- Determining estimated taxes: this is how businesses pax taxes on any income that is not subject to withholding. This type of taxation can involve income from self-employment, interest, or dividends. If you fail to pay on any of these taxes may put your entire business at risk for non-compliance.
- Charitable donations: businesses and individuals can receive tax deductions for making charitable donations. You may even be able to write off certain expenses related to that donation, such as travel used for volunteering.
How to Ensure Tax Compliance
With so many different tax codes and regulations (and continual updates and changes), it can be a challenge to keep up with tax laws and ensure that your business is fully compliant. Some tax codes, whether on the federal, state, or local level may even appear contradictory to someone inexperienced with the tax world.
However, by educating yourself on tax codes or by working with an experienced team of outsourced accountants or outsourced payment processing professionals, you can be in good standing when it comes to tax season and avoid any unnecessary fines, penalties, or audits this April.
To ensure tax compliance, consider these important factors:
- Deadline: every quality accountant is sure to have April 15th circled on their calendar as tax day. But this deadline is more common for individuals filing their taxes. Businesses may have a range of different deadlines for their filings, deposits, and payments, especially when you factor in tax withholdings from employee paychecks. To avoid compliance issues, it’s critical to understand and mark every tax deadline and requirement so you’re not rushing last minute, or even worse, missing one entirely.
- Accuracy: accurate information and payments is critical for the IRS to be happy with your taxes. If your tax information and payments are not accurate, you run the risk of underpaying, which can be met with severe consequences. The IRS is allowed to assess penalties (with interest) and can take many different actions to collect what they are owed. In the most extreme cases, deliberately providing false or inaccurate tax filings may even lead to criminal charges and prosecution.
- Bookkeeping and record keeping: detailed and accurate bookkeeping is essential for tax compliance, especially in the rare event that an IRS audit occurs. As a business owner, you must maintain accurate records to ensure that correct information is provided to the IRS. If a compliance issue does arise, then these documents are generally used to determine whether or not an error was done on purpose or as an accident.
- Filing deadlines: to ensure compliance for individuals and businesses, you need to have all your taxes filed by April 15th of each year. In some cases, however, a business may be able to request an extension. To receive one, you must fill out an extension request and have it accepted by the IRS.
Conclusion – What You Need to Know About Tax Compliance for Your Small Business
While no one (even the most devoted accountants) is ever really looking forward to tax season, this doesn’t mean you should shy away from getting your taxes in order and ensuring that you file on time. Having a solid tax plan in place and getting a head start can help you remain tax compliant.