Avoiding IRS Penalties: Common Filing Mistakes Small Businesses Make

Running a small business in Rochester, NY comes with plenty of challenges—and taxes are near the top of the list. While most business owners are focused on serving clients and growing revenue, IRS deadlines and filing requirements can easily fall through the cracks. Unfortunately, even minor mistakes on tax returns or payroll reports can lead to costly penalties, interest charges, or even audits.

At Nacca & Capizzi, LLP, we’ve been helping small businesses stay compliant since 1979. To protect your business from unnecessary costs and stress, it’s essential to understand the most common filing mistakes and how to avoid them.

1. Missing Deadlines

One of the most common ways small businesses incur IRS penalties is by missing tax deadlines. The IRS imposes strict filing dates for income taxes, payroll taxes, and information returns. Missing just one deadline can trigger late-filing penalties, while failing to pay owed taxes on time results in additional interest and late-payment penalties.

How to avoid it: Keep a tax calendar with all important IRS and New York State deadlines marked, including quarterly estimated taxes (Jan 15, Apr 15, Jun 15, Sep 15) and payroll tax deadlines (Jan 31, Apr 30, Jul 31, Oct 31). Working with a CPA ensures you never miss a due date.

2. Filing Incorrect Information

Simple errors—like misspelling an employee’s name, entering the wrong Social Security number, or mismatching wage amounts—can result in penalties and delays. For businesses filing W-2s and 1099s, incorrect information often leads to notices from the IRS and additional administrative work.

How to avoid it: Double-check all forms before filing, and make sure your payroll system is updated with the latest employee information. CPAs use review processes to ensure accuracy before submission.

3. Misclassifying Workers

Improperly classifying employees as independent contractors—or vice versa—is a mistake the IRS takes seriously. Misclassification can result in unpaid payroll taxes, penalties, and back wages. This mistake is especially common for small businesses using part-time or seasonal workers.

How to avoid it: Understand the IRS guidelines for worker classification. Employees typically follow company direction and use company resources, while contractors maintain independence. If in doubt, consult a CPA to avoid penalties.

4. Failing to Make Estimated Tax Payments

Small businesses and self-employed individuals that expect to owe more than $1,000 in taxes must make quarterly estimated payments. Failure to do so often results in underpayment penalties and interest charges at year-end.

How to avoid it: Calculate estimated taxes based on projected income and pay quarterly. A CPA can help you adjust these payments throughout the year to reflect changing business performance.

5. Poor Record-Keeping

Disorganized records lead to mistakes when reporting income and expenses. Missing receipts, inconsistent bookkeeping, or outdated systems make it difficult to file accurate returns. Inaccurate reporting can trigger audits and lead to additional taxes owed.

How to avoid it: Maintain a reliable accounting system like QuickBooks, and reconcile accounts regularly. As QuickBooks ProAdvisors, Nacca & Capizzi helps businesses in Rochester set up and maintain accurate bookkeeping systems.

6. Mixing Business and Personal Expenses

Many small business owners use personal accounts for business transactions, making it difficult to separate deductible expenses. This can lead to overstating or understating deductions, both of which carry risks of penalties.

How to avoid it: Always use a dedicated business account and credit card for expenses. This separation makes it easier to track deductions and provides cleaner records in the event of an audit.

7. Overlooking Available Deductions and Credits

Failing to claim all eligible deductions and credits doesn’t usually result in penalties—but it does mean you’re leaving money on the table. However, overstating deductions or claiming ineligible credits can draw IRS attention and lead to penalties.

How to avoid it: Work with a tax advisor who understands the specific deductions available to Rochester businesses, from Section 179 expensing to energy credits. Proper documentation ensures deductions are accurate and defensible.

8. Incorrect Payroll Tax Filings

Employers are responsible for withholding and remitting payroll taxes. Mistakes—such as underwithholding, misreporting wages, or failing to deposit payroll taxes on time—can result in steep penalties and interest.

How to avoid it: Use a reliable payroll system, review reports regularly, and work with a CPA to ensure compliance with IRS and New York State payroll tax rules.

9. Ignoring IRS Notices

Receiving a notice from the IRS can feel intimidating, but ignoring it only makes matters worse. Failure to respond may lead to escalating penalties, liens, or levies.

How to avoid it: Always respond promptly to IRS correspondence. If you’re unsure how to proceed, contact a CPA immediately for guidance.

10. Not Planning for Year-End

Last-minute tax planning is one of the most common mistakes small businesses make. Waiting until filing season to review finances limits your ability to reduce liability. By the time the year ends, opportunities for deductions, credits, or retirement contributions may already be gone.

How to avoid it: Schedule a year-end tax review with your CPA before December 31. Proactive planning allows you to take advantage of strategies that minimize taxes and prevent penalties.

Why Rochester Businesses Trust Nacca & Capizzi

Since 1979, Nacca & Capizzi, LLP has been guiding Rochester’s small businesses through the complexities of tax compliance. From QuickBooks setup to payroll management and IRS representation, our team ensures you avoid costly mistakes and focus on growth. We’ve seen every filing error in the book—and we know how to help you prevent them.

Protect Your Business from IRS Penalties

IRS penalties can be avoided with proactive planning, accurate filing, and expert support. By partnering with a trusted local CPA firm, you’ll gain peace of mind knowing your filings are correct, your deadlines are met, and your business is protected from unnecessary costs.

Contact Nacca & Capizzi today to schedule a tax consultation and keep your Rochester business penalty-free.

Contact Nacca & Capizzi, LLP

Address: 2430 Ridgeway Ave, Rochester, NY 14626
Phone: (585) 225-9290

Nacca & Capizzi, LLP — Trusted accounting, tax, and advisory services for Rochester’s businesses, individuals, and non-profits since 1979.

Disclaimer: This article is for informational purposes only and should not be considered tax, legal, or financial advice. Every individual and business situation is unique, and tax laws frequently change. Always consult with a qualified professional advisor, such as the CPAs at Nacca & Capizzi, LLP, before making decisions related to your finances or taxes.