None of us like having to pay taxes, but don’t try to finagle the numbers to pay less. If you are audited and didn’t pay all that was due, you will end up owing quite a bit more than the tax balance.
There are many different types of audits. Most well known is the income tax audit where your figures reported are compared to supporting documentation. A sales tax audit will verify the amount of tax remitted is correct for the products sold and locations where the sales occurred. You may also be subject to a payroll audit where the mis-classification of workers can be costly.
If you are found to have not paid the full amount of tax, you will be charged the tax due calculated by the tax agency, plus penalties and interest. Penalties usually start at 10% of the tax due. Interest accrues each month on the unpaid balance.
If you are found to have a large balance due, you may be able to work out a reduction of the tax with a signed guarantee that you will continue to pay the tax due on a regularly scheduled basis. To keep this in force, you must continue to pay your current tax due on time, file all required paperwork, and pay your prior tax balance consistently. Failure to do so may mean that the full tax balance is immediately due and payable.
To avoid having a tax balance due, adhere to the following:
- Never underpay your taxes by falsely stating income expenses to reduce what you owe
- Collect the right amount of sales tax based on the jurisdiction where your customer is located
- Properly classify workers as employees if guidelines require it
Knowing you’ve done everything correctly will mean you won’t panic if you receive an audit notice.
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