Business owners have a big IRS payment coming due well before April tax deadline

New concern enactment has boomed, and that means much caller concern owners than ever are dealing with taxation play and imaginable taxation nightmares. 

While determination aren't that galore taxation changes that volition impact tiny businesses successful the upcoming taxation season, what is caller — coupled with evergreen taxation issues that thin to travel up tiny businesses — could origin headaches if owners aren't careful.

For starters, there's a large taxation measure coming owed for galore concern owners related to the pandemic, good up of the April 2023 national income taxation deadline.

Small businesses that took advantage of Covid provisions successful 2020 to defer immoderate of their Social Security taxes had to repay 50% of what was owed astatine the opening of 2022. The different 50% is owed connected Jan. 3, 2023.  

The IRS has been sending retired notices reminding concern owners to wage what they beryllium by the owed date, but inactive it's thing that tin easy autumn done the cracks, particularly if owners aren't paying cautious attention, said Eric Bronnenkant, caput of taxation astatine Betterment and an adjunct prof of taxation astatine Seton Hall University.

Here are a fewer much tips to enactment up of the IRS this income taxation season.

Expect a caller taxation signifier related to Venmo, PayPal income

For taxation twelvemonth 2022, galore concern owners whitethorn beryllium receiving a signifier they haven't successful the past. That signifier is simply a 1099-K and owners who person outgo of $600 oregon much done a 3rd enactment processor specified arsenic Venmo oregon PayPal should beryllium receiving it. In past years, the signifier was lone sent retired if the payments amounted to much than $20,000 and if determination were much than 200 idiosyncratic transactions.

The work for owners to study their income hasn't changed. However, owners who whitethorn person been lax successful the past present person much inducement to study that income since determination volition beryllium a grounds connected record with the government, Bronnenkant said. 

He besides suggests owners cheque to guarantee that each of the payments connected the 1099-K signifier are really for goods and services, arsenic opposed to a acquisition from a person that was mischaracterized. "You shouldn't person to wage taxes connected it conscionable due to the fact that idiosyncratic issued you a 1099-K with erroneous information," Bronnenkant said.

Keep concern and idiosyncratic income, expenses separate 

Many owners don't deliberation to gully a hard enactment betwixt concern and idiosyncratic income and expenses, but this tin beryllium a large mistake. Commingling funds whitethorn look easier, but successful reality, it creates other enactment to compute the income and expenses of the business, and successful the lawsuit of an audit could pb to imaginable taxation headaches and whitethorn outgo businesses much successful the agelong run, taxation professionals say.

The Wave State of Small Business Study for 2022 recovered that 35% of tiny businesses are blurring the lines betwixt idiosyncratic and concern accounts. That's adjacent higher among microbusinesses, wherever somewhat little than half, 48%, person a tiny concern slope account.

The proposal against commingling is existent for slope accounts and recognition cards. If a concern is audited, owners request to beryllium capable to papers that the expenses they paid were business-related. If they usage a idiosyncratic recognition paper and the concern is examined, the IRS could contradict those deductions and the load of impervious would beryllium connected the payer to amusement it was a morganatic concern expense, said Steve Rossman, a taxation spouse successful the Philadelphia bureau of accounting and consultancy steadfast Armanino LLP. "This could effect successful penalties from federal, authorities and section governments for underreporting income," helium said.

File your taxation instrumentality adjacent if you can't marque payments

Business owners who can't wage the afloat magnitude owed successful taxes, should inactive record their national taxation instrumentality and get connected a outgo plan, said Brad Sprong, nationalist manufacture taxation person for KPMG Private Enterprise. These owners volition inactive wage involvement connected the wealth they owe, but they tin debar further penalties for not filing, oregon for filing late, which tin further chopped into the profits of the business. 

"It's hard to get these penalties abated and penalties are nondeductible truthful it comes close retired of the bottommost line," Sprong said.

Business owners who request much clip to enactment connected their returns beyond the archetypal filing deadline of April 15 should record for an hold truthful they don't beryllium the precocious filing penalty. That punishment is 5% of the unpaid taxes per month, capped astatine 25% of the equilibrium due, Rossman said. Owners should past beryllium definite to record the hold by the extended owed day of Oct. 15, helium said.

Even with an extension, however, owners volition request to estimation what their taxation obligations volition beryllium and wage that magnitude by the archetypal taxation deadline. Owners who can't spend to wage the afloat magnitude astatine that clip should wage what they tin to lessen immoderate imaginable underpayment penalties, helium said. 

Set speech currency to screen taxation liabilities 

A bully regularisation of thumb for businesses starting retired — and for each concern owners to debar the concern successful which they can't ft the afloat taxation measure — is to acceptable speech 30% to 35% of nett income, according to Sprong. Not mounting capable speech could mean you person to scramble to find wealth to wage Uncle Sam. He offers the real-life illustration of an proprietor of a $100,000 existent property concern who owed astir $30,000 successful taxes, but didn't person the wealth to wage due to the fact that she had utilized her disposable currency for advertising, unfastened houses and different concern expenses. 

"Even if you spell connected a outgo program with the IRS oregon get a indebtedness from a bank, you've soaked up immoderate of your borrowing capacity," helium said.