You take a deep breath and relax. You finally finished your small business’ tax returns. They are filed and you can move on — then boom.
It hits you.
You realize you made a mistake.
You may have a moment of fear where all the possible outcomes of that mistake flash through your mind like a bad movie. Will you go to jail? Will the police come into your business to ask questions? Are you going to lose your business?
Take another breath and continue reading. We are going to touch on the possible outcomes and give you some tips to move forward and deal with this problem. The fact is, in many cases this not a big problem. If the mistake was a relatively small mathematical error, the Internal Revenue Service (IRS) will likely fix the problem. If it is a bigger problem, like you forgot to report income, you will probably need to file an amended business return.
When should I worry?
If you forgot to report income, it is a good idea to promptly move forward with an amended return, discussed in more detail below. Do not take this lightly. The IRS takes any instance when a taxpayer fails to report income very seriously. They could argue that this failure was intentional and, if successful, push for serious criminal penalties like prison time.
When do I need to file an amended business return?
As noted above, a failure to report income is one example that can trigger the need to file more paperwork. There are also mistakes that trigger a need for an amended return that can result in a more positive outcome for business owners. These can include:
- Errors with deductions. Business owners qualify for lots of tax deductions. These can include deductions for a home office and qualified business income. A failure to take these or deducting too much could trigger the need to file an amendment.
- Failure to take a tax credit. Congress passed a bunch of laws that led to tax credits for small business owners. Many were extended and some are available retroactively (see more on this in a previous post, available here). If you forgot to take this credit, you may still be able to get these benefits by filing an amended return.
The right tax form for the amended return varies depending on the type of business structure. Sole proprietorships and single member LLCs generally use a Form 1040X while a partnership or multiple-member LLC would use a Form 1065, Subchapter S corporation a Form 1120S and Subchapter C corporation a Form 1120X.
It is also important to note that these changes could impact state tax obligations. The attorneys at Goldburd McCone are familiar with the tax laws and regulations that businesses need to navigate. We can review your situation and discuss options that best align with your business strategy.