What Are the Most Common Business Tax Return Errors?
It's easy to make mistakes as you rush to complete your business and personal tax returns on time. Read through this list to avoid common mistakes before you send in your return.
#1 Mistake: Not Filing By the Due Date
Missing the due date for your business tax return can be costly because the IRS imposes penalties for late filing.
Your business tax return due date depends on your business type:
- Sole proprietor and single-member LLC returns on Schedule C are due on the same day as the personal tax return due date, April 15.
- Partnership and multiple-member LLC tax returns are due on March 15.
- Corporate tax returns are due the 15th day of the fourth month after the end of the corporation's fiscal year.
Those affected by winter storms in Texas, Louisiana, and Oklahoma in 2021 are eligible for an automatic extension on all tax returns and payments. Individuals and businesses in these areas can delay making payments or filing returns until June 15, 2021. This covers personal tax returns and quarterly estimated taxes due April 15, partnership returns due March 15, and more.
The April 15 deadline has additionally been extended for all individuals, regardless of location, in response to COVID-19. The 2021 filing date is May 17, 2021. This extension does not apply to quarterly estimated payments, however. The extension also does not affect the June deadline given those affected by the winter storms in Texas, Louisiana, and Oklahoma.
Tax due dates may change each year. The date is the next business day when the due date falls on a weekend or a holiday. This article has the actual business tax due dates for the current tax year.
More Key Business Tax Errors
The IRS sees these errors most often on tax returns including business tax returns:
Incorrect or Missing Taxpayer ID Numbers
Make sure the number is correct and that it is the right number for your business type. For Schedule C filing (line D), you must use the Employer Identification Number (EIN) for your business. If you are a single-member LLC, enter the EIN for the LLC. If you don't have an EIN, leave line D blank.
Underpaying Estimated Taxes
You'll have to pay quarterly estimated taxes on your business income and for self-employment tax (Social Security/Medicare) if you're a self-employed business owner. The IRS guidelines say you should make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your return. Failing to pay estimated taxes can mean penalties for underpayment.
Failing to Separate Business and Personal Expenses
This mistake won't get your return sent back to you, but it will become an issue at a tax audit. Be sure you can prove that all your business tax deductions are actually for business purposes.
Failing to Report All Business Income
You must report the income on your business tax return if you receive a 1099-MISC form for business payments you received during the year. The IRS compares 1099 forms it receives from payers with 1099s reported by payees.
Other Common Business Tax Return Errors
A few other problems can trip you up as well:
- Make sure the name on your tax return isn't misspelled. It's the same as on your Social Security card or taxpayer ID.
- Watch out for math errors that cause problems with tax amounts.
- Make sure you and your spouse both sign and date the return if you're filing jointly.
- Make sure your address is accurate and legible.
- Don't neglect to use brackets (parentheses) to show negative amounts.
- Be sure to figure your tax correctly using the tax tables.
- Make sure you've attached all necessary schedules, including Schedule C, in order of sequence.
- Be sure to send the return to the correct IRS location.
- Don't forget to put a postage stamp on the envelope if you're mailing in your return.
- Make your check payable to "United States Treasury" and include name, address, taxpayer ID, daytime phone, tax form, and tax year on the payment.
- Don't neglect to include a financial institution routing and account number if you want your refund direct deposited.
How to Fix Those Common Tax Return Errors
You can wait for the IRS to fix them if your errors are simple, such as a small calculation error, but you'll have to file an amended business tax return if the errors are more substantial. The form you use for this return depends on your business type:
- For errors on Schedule C, you'll need to file Form 1040X to make the change in your personal tax return for the year.
- For a corporation, file Form 1120X.
- For an S corporation, file an amended Form 1120-S, and put a checkmark in box H(4) on page 1. Attach a statement that identifies the line number of each amended item, the corrected amount, and an explanation.
- For a partnership tax return, use Form 1065X.
You can now e-file an amended Form 1040 for Schedule C changes. If your corporation or S corporation return was filed electronically, you can use the IRS MeF system for the amended return.
You have three years from the time you filed the original return to file the amended return, but if your mistake results in your owing money to the IRS, you should file as soon as possible.
Filing an amended return for a business is a complex process. Get help from your tax professional or business tax preparation software program.