For small-business owners, preparing an income tax return is far from simple, which can increase the chances of making a mistake. Here are six steps that small-business pros say you can take to cope with that hair-on-fire feeling of discovering an error after you’ve filed — plus how to get things fixed quickly so you can go back to running your business.
1. DOUBLE-CHECK YOUR WORK
If you suddenly think something’s wrong with the tax return you already filed, make sure there is in fact a mistake before taking further action.
“Go back to the original preparer and verify what you’re seeing first,” says David Klasing, a certified public accountant and attorney in Irvine, California. “Don’t just assume the return is off, because your analysis could be wrong.”
Also, make sure you gave the preparer accurate information, says DeLisa Clift, who is a mentor with the Savannah, Georgia, chapter of SCORE, a national nonprofit that offers free resources to business owners.
2. STAY CALM
If all you’ve done is make a simple math error, the IRS’s automated systems may catch it, fix it and send you a letter saying so, Clift says. If the math error means you underpaid or overpaid, the IRS will let you know that, too, she adds. If you can’t afford an extra tax bill right now, you may have time because the IRS offers payment plans that let people pay in installments.
3. FIGURE OUT WHO’S GOING TO FIX THE MISTAKE
If there’s indeed an error on your tax return — and it’s more than just you forgot to carry the one — figure out who will do the fixing. Your contract with your tax preparer may detail whether you or the preparer has to handle the work, Clift says.
“You really shouldn’t incur a cost if someone else has prepared your tax return for you,” she says.
4. AMEND YOUR TAX RETURN
Amending your tax return means filling out either an IRS Form 1040-X or an 1120-X, depending on your business structure. Don’t try to DIY it, Klasing says.
“The preparation of a proper amended return involves so many steps that are counterintuitive,” he says. Some of those steps include showing where and how your tax return changed, providing documentation explaining why you’re amending your return , then remembering to actually amend your state tax return by filling out the new separate paperwork, if necessary.
5. GET READY TO PAY
If the mistake resulted in you underpaying the IRS, the IRS may hit you with interest and penalties in addition to the taxes you mistakenly didn’t pay. However, the IRS may give you a break on the penalties.
“Reasonable reliance on a professional is grounds for penalty abatement,” Klasing says. But good luck getting your preparer to admit to an error.
“If you can get the preparer to throw himself under the bus and say, ‘You know what? This is my error, not the client’s error,’ you’ve got two things: Number one, you got grounds for penalty abatement; number two, you’ve got grounds for a malpractice claim. That’s why it’s so rare for them to do it,” he says.
6. RESTRATEGIZE YOUR FILING HABITS
Once you’ve fixed the error on your tax return, work on avoiding a repeat for next year. First, consider setting aside more time to review your return before filing it. In the eyes of the IRS, you’re personally responsible for everything on your tax return — even if someone else prepared it, Klasing says.
“Preparers make errors all the time, but you were under a duty to find those errors before you filed,” he says.
Second, you may want to review your relationship with your tax preparer. Some tax preparers may apply deductions or tax credits that you might find dubious, according to Klasing.
“They feel if they get the lowest tax liability in town, they’re going to have a line around the block,” he says. “It happens all the time.”
This article was provided to The Associated Press by the personal finance website NerdWallet. Tina Orem is a writer at NerdWallet. Email: [email protected]
NerdWallet: IRS Payment Plan or Installment Agreement: Tax Payment Options & How They Work https://bit.ly/nerdwallet-how-to-set-up-irs-payment-plan
NerdWallet: Form 1040-X, Amended Tax Return: What It Is and How to File One https://bit.ly/nerdwallet-amended-tax-return
NerdWallet: Hit With a Tax Penalty? The IRS Might Give You a Do-Over https://bit.ly/nerdwallet-irs-penalty-first-time-abatement
NerdWallet: A Tax Guide for Small-Business Owners https://bit.ly/nerdwallet-small-business-tax-preparation
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