What To Do If Your Business Taxes Are Incorrect

Preparing an income tax return, whether for individuals or small businesses, is far from straightforward, which increases the likelihood of making a mistake. Here are six steps small-business experts recommend for dealing with the hair-on-fire feeling of discovering an error after you've filed — as well as how to get things repaired fast so you can go back to operating your business.

1. Check Your Work Twice.

If you get a sudden feeling that something is amiss with the tax return you have already submitted, check sure there is a mistake before proceeding.

"First, go back to the original preparer and check what you're seeing," advises David Klasing, an Irvine, California-based certified public accountant and attorney. "Don't just assume the return is incorrect; your analysis might be incorrect."

Also, make sure you provided accurate information to the preparer, advises DeLisa Clift, a mentor with the Savannah, Georgia, branch of SCORE, a national charity that provides free tools to company owners.

2. Remain Calm

If all you did was make a basic math error, the IRS's automatic systems may notice it, repair it, and send you a letter informing you, according to Clift. If the math error causes you to underpay or overpay, the IRS will notify you as well, she says. If you can't afford an increased tax bill right now, the IRS provides payment options that allow consumers to pay in installments.

3. Determine Who Will Correct The Error.

If there is an issue on your tax return, and it is more than simply you forgetting to carry the one, figure out who will rectify it. According to Clift, your contract with your tax preparer may specify whether you or the preparer must do the assignment.

"You shouldn't have to pay anything if someone else has completed your tax return for you," she argues.

4. Modify Your Tax Return

Depending on your business structure, amending your tax return entails filling out either an IRS Form 1040-X or an 1120-X. Klasing advises against attempting to do it yourself.

"The preparation of a good amended return entails so many counterintuitive processes," he explains. Some of these processes include demonstrating where and how your tax return has changed, giving evidence explaining why you're updating your return, and remembering to actually modify your state tax return by filling out the new separate paperwork if required.

5. Prepare To Pay

If you underpaid the IRS as a consequence of the error, the IRS may levy interest and penalties on top of the taxes you failed to pay. The IRS, on the other hand, may offer you a break on the penalty.

According to Klasing, "reasonable reliance on a professional is grounds for penalty abatement." However, good luck getting your preparer to acknowledge a mistake.

"If you can get the cook to throw himself under the bus and say, 'You know what? This is my fault, not the client's,' you have two options: One, you have grounds for penalty abatement; two, you have grounds for a malpractice claim. "That's why it's so uncommon for them to do it," he explains.

6. Rethink Your Filing Habits

Once you've corrected the problem on your tax return, focus on avoiding a repetition the following year. To begin, try devoting extra time to reviewing your return before filing it. According to Klasing, you are individually liable for everything on your tax return, even if it was prepared by someone else.

"Preparers make mistakes all the time," he argues, "but you had a responsibility to uncover those mistakes before you filed."

Second, consider your connection with your tax preparer. According to Klasing, certain tax preparers may apply deductions or tax credits that you may find questionable.

"They believe that if they have the lowest tax liability in town, they'll have a queue around the block," he adds. "It occurs all the time."