When you’re a business owner, getting a tax notice from the IRS can feel unsettling. You already have a lot on your plate, from managing human resources and payroll duties to the daily administrative tasks, so dropping everything to deal with a potential tax issue is just another task — and a worry you don’t need.
On a brighter note, many IRS notices can quickly and easily be resolved. And to reduce the number of notices you receive in the future, or avoid getting one altogether, it’s important to always file your tax returns correctly and on time.
Read on as we cover some frequently asked questions (FAQs) about an IRS notice, including general information as to why you may get an IRS notice, what some of the most common IRS notices are that businesses may receive, and the steps you can take to resolve them.
What is an IRS Notice?
An IRS Notice is an official document from the Internal Revenue Service (IRS) that informs taxpayers of changes to their tax liability, potential penalties for noncompliance, or other miscellaneous updates. This notice may also be used to request additional information or documentation in order to complete a tax return or assessment. Examples of common IRS notices include notices of assessment, notices of deficiency including a balance due, notices of proposed penalty.
Reasons for getting an IRS notice
While it can seem like the IRS is targeting you when they send you a notice, generally speaking, there’s usually a valid reason. It’s an opportunity to correct an issue, provide additional information, or take note of an important change so you can file future tax returns accurately and on time.
Typically, the IRS contacts a business under these circumstances:
- A math error or missing tax information
- Tax payment or tax amount is past its due date or incorrectly filed
- Discrepancies between what you report on your tax forms and what the IRS shows in their records
- A change in frequency of payroll tax deposits
- Notification of a balance owed
- Questions about a tax return, a delay in processing it, or requests for additional information
Common tax notices for businesses
Here are some of the more common IRS notices your business could receive and what they’re for:
The IRS found a discrepancy between the amount of federal tax deposits you reported on your tax return and the amount credited to your account.
There’s a change in your payroll deposit requirements from the previous tax year that may affect when deposits need to be made going forward.
You filed a tax return late or it was incomplete, or you failed to file it electronically. This notice of a penalty is typically sent to the owners of partnerships or S-corps.
Your federal employment tax filing requirement has changed and you no longer meet the criteria for filing an annual Form 944 and must switch to a quarterly Form 941.
You didn’t file a tax return for the periods specified in the notice.
Notice CP2100 or CP2100A
Your filed tax return shows an incorrect or missing name or tax ID number.
Levies and Garnishments
You’re responsible for withholding a portion of an employee’s wages and need to remit them to the proper agency.
What to do if you get a tax notice
Getting an IRS notice can bring up a host of other worries. You may feel like you don’t have the time or resources to respond to the notice or take the steps necessary to fix the situation. Maybe you fear it’ll require in-house expertise you don’t have and that you’ll have to hire an accountant or tax professional to help — and the funds for that might not be in your budget.
All of this is understandable. However, once you receive a tax notice, you may find that you can take care of it yourself relatively easily. The best thing to do is not to ignore it, though, to avoid additional penalties. Instead, take it one step at a time and respond in a timely manner. Adopting this approach can go a long way toward putting your mind at ease and resolving the issue at hand without inadvertently creating more issues for your business.
Here’s a step-by-step guide for how to handle an IRS notice:
1. Open the letter promptly and review all information
When you get a tax notice, open and read it right away. You’ll often see time-sensitive instructions that require a response by a certain deadline. If you miss that deadline, you can create complications — including the potential of a full tax audit and even a lien on your business.
Also make sure to thoroughly review all information in the notice. For example, if it’s about a changed or corrected tax return, compare the information in the notice to what’s on the original return. If the information is correct, all you need to do is note the correction for your own records. If more is needed from you — such as a payment or additional information — or if you don’t agree with what’s in the notice, then you can contact the IRS.
2. Take action as requested and keep copies for your records
Only reply if you’re instructed to do so. If the IRS needs a response from you, either respond in writing as specified or call the phone number included in the notice. If you need to make a payment, you should also do so at this time.
Always make and keep a copy of the original notice, along with the response you eventually provide to the IRS (if any), so that all information is saved in your own records in case you need to refer to it later.
3. Notify the IRS of a disputed notice
In some cases, you may disagree with the IRS. In this event, send a letter to the IRS explaining why you dispute the tax notice and mail it to the mailing address included within the notice. Make sure to include all supporting information and tax documents that help the IRS review your dispute.
4. Be aware of scams
Stay alert to the fact that the IRS will first contact you through the mail, and never contact you through email, social media, or text message. If you receive a suspicious message, refrain from replying and giving out personal information that can result in serious financial loss.
How PrimePay can help
Paying attention to payroll taxes, tax laws, federal and state taxes, are all big parts of owning a small business. So if or when you get an IRS tax notice, it’s crucial to address it right away so you can avoid bigger problems down the road.
That being said, sometimes you need the right help before you even get to that point.
With PrimePay’s payroll software and payroll service solutions, you can run payroll accurately and easily, file taxes correctly and on time, and ensure compliance with all other payroll- and tax-related laws and regulations.
To learn more, schedule a call with one of our experts today.
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