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How to Identify and Correct Common Mistakes on Your Small Business Tax Return

How to Identify and Correct Common Mistakes on Your Small Business Tax Return

By Caron_Beesley, Contributor
Published: April 23, 2012 Updated: September 16, 2016

So, you filed your small business tax return and are breathing a sigh of relief that tax season is finally over – only to find that the IRS has just dropped a letter in your mailbox.

While some tax mistakes can carry serious penalties and result in an audit, not all notices from the IRS indicate that an audit is coming your way. It’s quite possible that the IRS needs more information or you may have made an unwitting error when you filed.

On the flipside, what if your filing error is to your benefit? After all, one of the most common small business tax mistakes is failing to claim tax credits they’re entitled to!

Before you panic, there are things you can do to correct tax errors or filing mistakes before the IRS does. 

Common Tax Errors

If you know that you have omitted information from your tax return, made an error, or missed a filing deadline, it’s always best to take care of it before receiving a notice from the IRS, which can result in unnecessary interest, penalties and other complications. Here are some of the more common small business tax oversights and errors.

1.  Missed Tax Credits – Did you remember to claim the Small Business Healthcare Tax Credit? Perhaps you hired a veteran or disabled worker in 2011? In addition to other employee credits you can claim under the Work Opportunity Tax Credit (WOTC), the Returning Heroes Tax Credit provides a maximum credit of $5,600 per veteran for businesses that hire unemployed veterans before January 1, 2013. The Wounded Warriors Tax Credit offers a maximum credit of $9,600 per veteran to businesses that hire veterans with service-connected disabilities. Did you hire a disabled worker? The IRS offers guidance on credits here

You can often claim missed tax credits that trace back several years, but it’s best to talk to your accountant or tax attorney about what you may have missed and how to claim it.

2.  Filing the Wrong Return – A common error that business tax payers make is filing the wrong form, or the right form but in the wrong year. Perhaps you thought you were eligible for a credit or deduction you don’t actually qualify for? Whatever the reason, the IRS isn’t going to like it.

Other mistakes include misclassifying independent contractors as employees (check out the IRS’s amnesty program on this one), not knowing current tax laws, and mishandling tax deductions.  As this infographic from Intuit shows, there are plenty of other errors to look out for.

Taking Care of Tax Return Errors

If you do get a notice from the IRS, do your research and don’t assume that the IRS is correct. It’s worth hiring an attorney to help you walk through this process and help you avoid making the same mistake again.  Another option is visiting your local IRS office. They are there to help you and may be able to help you clear up any issues.

When it comes to taking care of errors, the IRS “X” form is the documentation you’ll need to turn to. For every tax return form, there is a corresponding form containing the “X” suffix that you’ll need to use to correct or amend your return (for example the “1040X Form” for correcting your individual return).

Common forms that impact small businesses include:

  • Forms 94X – For correcting employment taxes
  • Form W-2C and Form W-3C – To correct any mistaken information filed about total employee earnings and withholdings for the year (done through the Social Security Administration)
  • Form 1065 – For correcting errors on partnership returns
  • Form 1120S – For amending “S” corporation income tax returns
  • Form 1120X – For corporation tax amendments
  • Information returns – If you made an error on an information return such as a 1099 or 1098, instructions for correcting these are posted here.

Don't Ignore Notices from the IRS

Don’t put off acting on a notice from the IRS, whatever action is required. This can increase the amount you owe because penalties and interest keep accruing.

Appeal a Tax Dispute

If you are can’t resolve tax mistakes with the IRS or don’t agree with how the IRS has arrived at a determination, you can file an appeal with the IRS Appeals office.

If your business is repeatedly audited, over-regulated or penalized by the IRS or any other federal, state or local government agency, you can file a complaint with the SBA’s Office of Ombudsman.

Got small business tax questions? Post them in the SBA.gov Community.

Related Resources

About the Author:

Caron Beesley


Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley