Filing taxes is everyone’s least-favorite task, and it’s even more onerous for small businesses which struggle to find time for all of the work involved. It’s no surprise that many individual and business tax returns are rejected or sent back to correct errors of all sizes. Read on to understand the most common tax filing mistakes in Illinois and how to avoid them.
If filing taxes takes up too much of your time, or you can’t seem to get some aspect of it right, consider consulting a business attorney. An unbiased review of your individual or business status and filing process can illuminate ways to reduce your tax burden and help you become more efficient by incorporating the tasks into your normal reconciliation process.
Understanding Illinois Tax Law
In comparison to other states, Illinois’ tax reporting requirements are average. Its single rate individual income tax streamlines the process for most filers but its corporate taxes are considered high. Issues with Illinois’ business taxes include:
- The Personal Property Replacement Tax is an additional 2.5 percent on corporations and 1.5 percent on pass-through entities. This tax was created in 1979 to replace local taxes. This puts Illinois’s corporate tax rate at 9.5 percent.
- The Employment Insurance Tax is calculated individually. Small businesses are categorized as those with total quarterly wages of $50,000 or less.
- Sales and use taxes in Illinois are a combination of state and local rates, putting the combined total between 6.25 and 11 percent.
How Errors Happen in Illinois Tax Filing
Aside from common mistakes in spelling and transcribing numbers, many tax filers in Illinois fail to account for all of their income, taxable assets, or withholdings. Most of these data points are tracked by the Internal Revenue Service as well as the state, making errors easy to catch by comparing current and past returns.
The most frequent tax filing errors made by Illinois businesses are complicated by the uncommonly difficult state tax structure. Staying abreast of changes in Illinois tax law can be challenging, but this list of frequent tax filing errors provides a starting point for improving your business practices:
- Net operating loss carryforwards. The state does not allow carrybacks (using a loss to reduce a previous year’s taxes) and it currently caps carryforwards, which allows a loss to reduce a subsequent year’s taxes. Deduction limits have been in flux in recent years. From 2024 to 2026, C Corporations can deduct up to $500,000.
- Remote retailers not registering with the state and not collecting and paying accurate sales taxes.
- Underpaying estimated taxes. Companies can be penalized for failing to pay complete estimated taxes, which are usually due quarterly.
- Erroneous exemptions. The state has strict definitions of farm machinery, which does not include ATVs, mowers, and similar machines. Also, rolling stock exemptions do not include trucks under 16,000 pounds.
- Understanding and applying the correct apportionment calculations. For those who file in more than one state, understanding how to track and calculate Illinois taxes involves knowing how the law applies to goods and services. Items shipped to Illinois or shipped from Illinois to a state that doesn’t collect sales taxes should both be accounted for on Illinois taxes.
Getting on the Right Track With Illinois Taxes
If filing taxes is painfully difficult due to the complexity of the Illinois tax code or due to the time involved, speaking to a business attorney who specializes in tax law can be a breath of fresh air. Some of the potential solutions include reconsidering where your company is incorporated, determining how to reduce your tax liability in Illinois, and weighing whether a different corporate designation would work better for your purposes.The business specialists at Legacy & Life Law Firm LLC can help you navigate the common issues of Illinois tax law, reducing your record-keeping and filing burdens. Get in touch for a free consultation today.